‘To make money, you must spend money.’ The motto for venture capitalists in 2014. With another quarter to go, VC’s have already spent $3 billion more then they did in all of 2013, according to reports from PwC based on Thomson Reuters data. Investors these past two quarters are not focusing on seeding companies, but rather looking to deepen their investments and fund companies in the later and expansion phase of their investment.
Even though companies in their expansion saw $3.4 billion in quarter 3, most of any stage in quarter 3, that was down from quarter 2. Later stage companies saw the most growth from quarter 2 to quarter 3. They jumped 3% to $3.3 billion in quarter 3, which was the largest quarterly investment in later stage companies since Q3 of 2007.
2014 has been the year of software startup investments for VC’s. Software startups brought home a bit over $3.3 billion in quarter 3 alone, followed by the media industry with $1.8 in quarter 3 (23% increase from quarter 2). To round out the top 3 of quarter 3 was life science with about $1.1 billion in investments. VC’s are starting to put more faith in these companies in their later and expansion investments rather then seeding companies.
These companies in the later and expansion are starting to roll out revenue and the investors feel the money is spent better in growing these companies, not starting over and investing in new start ups. According to venturebeat.com, they believe these trends will continue through quarter 4 before the new fiscal year.
The recent dot com boom started a trend that has never really been seen in the venture capital world before. The emergence of non traditional investors have came to play. PWC.com states “The emergence of non-traditional investors, including hedge and mutual funds, is contributing to the increase in venture investing this year.” This is because of the dot com boom aforementioned how everyone now wants a piece of the treasure. With more and more unusual investors, the traditional investors are feeding more money into these software startups, since these hedge and mutual funds are watering down the value of such companies.