Venture capital funding in the Bay Area continued to decline in the second quarter, as many investors stuck to smaller, later-stage investments.

San Francisco companies raised $2.7 billion in the second quarter, a 25% decrease in capital investment from the first quarter. This funding level is 43% lower than the $3.8 billion raised in the second quarter of 2012.

The Bay Area's decline mirrored a national downturn in venture capital funding, with venture capital investment posting its worst quarter in almost three years.

The good news looking forward is that a stronger market for public offerings and a flurry of recent venture-backed purchases should spur investment in the months ahead.

We are seeing more corporate investors coming in – as many as we saw in the late 1990s – looking for those future IPO opportunities .

I am particularly encouraged by the growth in fundraising during the quarter. Nationwide, VCs raised 50 funds at a total of $6.8 billion in the second quarter of 2013, a 48% increase compared with the first quarter. Year to date, these funds were up 4% compared with the same six-month period in 2012.

The venture market is still under pressure, but activity is healthy and it appears that corporate investors and late-stage funds are beginning to fill a void in the market left by a shrinking number of VC firms.

A total of 261 Bay Area companies received funding in the quarter, one more (0.4%) than in the first quarter and 27% fewer than the 333 rounds in the second quarter of last year.

Despite the quarterly decline, Northern California's dominance as a venture capital hub continues, with San Francisco area firms attracting 61% more deals than its nearest rival, New York.

There continue to be large investments made in software, business support services and our region's biopharmaceutical sectors.

The largest deal of the quarter was:

  • Twilio Inc., a San Francisco-based provider of cloud-based tools enabling in-application voice and text communications, which raised $70 million in fourth-round financing.

In addition, two innovative pharmaceuticalrelated companies also received major funding:

  • Alvine Pharmaceuticals Inc., a San Carlos pharmaceutical company that makes therapies for celiac disease and other autoimmune conditions, raised $70 million in early financing.
  • Proteus Digital Health Inc., a Redwood City, Calif., maker of wearable sensor-based tools for tracking medication intake and effect, raised $62.5 million in a later financing round.

Twilio's and Alvine's twin $70 million investments represented the fourth-largest deals in the U.S. during the quarter.

They were bright spots in a bleak U.S. picture. Nationwide, 801 U.S. companies raised $7.2 billion in April, May and June, a 2% decrease in funding and a 0.5% dip in flow.

The largest funding in the U.S. was for Fab Inc., a New York-based shopping site for design aficionados, which raised $150 million in fourth-round funding from a number of investors, including Andreessen Horowitz and Atomico.

EQUITY FINANCINGS FOR BAY AREA VENTURE-BACKED COMPANIES*

  2 Q 2013 1 Q 2013 4 Q 2012 3 Q 2012 2 Q 2012
Number of Financing Deals 261 260 292 303 333
Amount Invested ($M) $2,653.80 $3,318.83 $2,875.31 $2,738.83 $3,815.92
 

TOP 10 DEALS IN BAY AREA

COMPANY NAME DESCRIPTION CITY ROUND TYPE RAISED ($MM) INVESTORS
Twilio Inc. Cloud-based tools for voice and text communications San Francisco Fourth Round $70.0 Bessemer Venture Partners, Draper Fisher Jurvetson
Alvine Pharmaceuticals Inc. Treatments for autoimune/inflammatory tracking San Carlos Other early $70.0 AbbVie
Proteus Digital Health Inc. Wearable sensor-based tools for medication tracking Redwood City Later $62.5 Novartis AG, Oracle Corp., Otsuka Pharmaceutical
View Inc. Provider of glass for flat-panel televisions, phones and tablets Milpitas Fifth Round $62.1 Corning, DBL Investors, GE Energy Financial Services
Roku Inc. Streaming content device and software Saratoga Later $60.0 BSkyB, Fidelity Investments, Hearst Ventures, News Corp.
Lyft Inc. On-demand ride-sharing service platform San Francisco Fourth Round $60.0 Andreessen Horowitz, Floodgate, Founders Fund Management LLC
Eventbrite Inc. Online event management and ticketing San Francisco Fourth Round $60.0 T. Rowe Price Associates, Tiger Global Management LLC
Natera Inc. Prenatal genetic testing San Carlos Fifth Round $54.6 Claremont Creek Ventures, Founders Fund Management LLC
Hortonworks Inc. Enterprise software Palo Alto Third Round $50.0 Benchmark Capital, Dragoneer Investment Group
Good Technology Corp. Mobile operations management solution Sunnyvale First Round $50.0 Undisclosed venture investors
 

 

*Equity financings include cash investments by professional venture capital firms, corporations, other private equity firms, and individuals into companies that have received at 
least one round of venture funding.

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