Tuesday, June 18, 2024

What every B2B firm needs to know about the state of venture capital

The figures are in. Venture capital investing in the U.S. for Q1 of 2015 has seen its biggest first quarter in 15 years, according to the latest reports. With investment levels 26 percent higher than this time in 2014, the future of venture capital investing looks promising. What do these figures mean for B2B entrepreneurs?

Breaking down the data

Figures for the first quarter of 2015 differ slightly depending on which report you look at. According to PricewaterhouseCoopers and the National Venture Capital Association’s MoneyTree Report, which uses data from Thompson Reuters, 1,020 deals brought in $13.4 billion. Dow Jones VentureWire, as reported by The Wall Street Journal, however, found that deals fell to 875, which represented the fewest deals since the first quarter of 2011, when total investment was recorded at $8.23 billion.

If the figures from the Dow Jones report are to be believed, then its assessment of its findings is that several large deals account for the increase in overall investing. Also, while venture investment is up, venture fundraising is down by a little over $2 billion from where it was this time a year ago. Despite these discrepancies, both reports do agree that quarterly investing this year was up from every quarter from last year in the U.S.

Russ Garland, reporting for Dow Jones, says that this decrease in fundraising growth indicates “that investors remain cautious about the industry overall while their enthusiasm for certain hot companies seem boundless.”

First quarter figures coming out of Washington State are just one illustration of this venture capital investment increase. This state’s figures were almost half of the total investment recorded in 2014, prompting Jeff Grabow, U.S. venture capital leader at Ernst & Young, to declare that Washington has created a “good ecosystem of talent, money and advisers through companies having successful initial public offerings, which in turn bring more venture-capital funding.”

He states, “It creates an ecosystem of people who have been through it, who like to build things, and they go on and do other things. Capital flows to that … If there is no ability to innovate, there is no need for venture capital.”

B2B firms, perhaps it’s time to look to Washington to set up shop?

Oh Canada!

The climate for Canadian businesses, however, is not quite the same, although Reuters has released a preliminary report which shows that the first quarter of 2015 is also the best the country has had since 2007. There has traditionally been a gap between Canada and the U.S. in venture capital investing, angel investors and the availability of capital to entrepreneurs. But according to Jérôme Nycz, executive vice-president of BDC Capital, that gap is closing.

“We’re seeing more money and programs are becoming available to entrepreneurs here,” he told the Financial Post in an interview. “Of course, it is not on the same scale as the U.S., but if you consider the 10-to-one population ratio, I don’t think we’re that far behind as we once were. A venture capital industry is coming into its own here in Canada. I would say the gap is being bridged as more options are being made available every year.

According to Nycz, one place where this gap is being bridged is in early-stage financing. Better financing options are available to the latest generation of entrepreneurs that are coming out of university and tech school, a shift which is beginning to reflect the more mature U.S. market.

What we can learn from Slack

As to why venture capital investing has increased so dramatically, the explanation may be found in a new trend: enterprises are raising money which they don’t immediately need. Enterprise chatting app Slack, for example, raised $160 million despite founder Stewart Butterfield admitting that he hasn’t spent any of the money he raised in his last round of venture capital funding.

Butterfield told Re/code that he’s putting money away as a cushion for the organization in case there is a shift in the market. He adds, “It’s [also] for having the flexibility to pursue big opportunities: Acquisitions, advertising, international expansion.”

Gary Little, a partner at Canvas Venture Fund, supports this trend. “This is a good time to raise money, even if you don’t need the money,” he told reporters. “I don’t see anything on the horizon that will cause a downturn but we know it will happen. Raise the money, but don’t spend it all.”

Photo via francis-moran.com


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