Venture capitalists in the industry’s heartland tightened the funding spigot in the fourth quarter, financing the fewest number of Bay Area companies in three years.

But the San Francisco/Silicon Valley region still took in the lion’s share of U.S. venture funding, as usual, adding a total of $3.1 billion to the coffers of fast-rising companies including Dropbox Inc.Pinterest Inc. and Planet Labs Inc.

Venture firms financed a reported 250 deals in the Bay Area last quarter, down 15% from 295 in the third quarter and down 20% from 311 in the final quarter of 2012. It was the slowest deal pace since the third quarter of 2010.

The $3.1 billion in capital invested in the quarter was 15% below the $3.65 billion of the third quarter and 11% less than the $3.48 billion in the fourth quarter of 2012.

The Bay Area’s deal total fell as a steep drop in technology deals overshadowed a surge of money into firms that provide support services for businesses.

In the tech sector, the number of venture financings for Bay Area companies slid to 81 in the fourth quarter from 101 in the third quarter and 122 in the fourth quarter of 2012. The dollar total invested in tech deals dropped to $569 million, down 48% from the third quarter and down a steep 63% from a year earlier.

The drop in reported tech company financings was led by the software sector, where total dollars invested slid to $422 million from $1.01 billion in the third quarter and $1.0 billion in the final quarter of 2012.

Rod Werner, managing director of tech banking for City National in Palo Alto, said one common refrain from venture capitalists is that "the valuations on companies here are really rich. So a lot of VCs are looking outside the Bay Area for deals."

For the full year the Bay Area’s deal total slipped to 1,125 investments, down 11% from 2012. Dollars invested were flat at $12.7 billion. Nationwide there were 3,480 venture deals last year, down 5% from 2012, while dollars invested inched up 1% to $33 billion.

Despite the Bay Area’s overall drop in funding, venture money continued to flow to regional firms providing business support services and consumer information services. The business support services sector saw 49 deals worth a total of $845 million last quarter, up from 48 deals worth $316 million a year earlier. Consumer information services attracted 36 deals worth $543 million, versus 43 deals worth $240 million a year earlier.

Among the fourth quarter’s biggest Bay Area venture deals:

– Dropbox, the San Francisco-based provider of online (cloud) storage services, received another $250 million from undisclosed venture investors, marking the region’s single biggest deal in the quarter. It led the business-services category.

Founded in 2007, Dropbox claims 200 million users worldwide, and now is making a major push for corporate clients. Many analysts believe the company is a prime candidate to go public this year.

Los Altos-based Box Inc., a Dropbox rival, may beat Dropbox to the market: Box Inc. in January filed for an IPO after raising $100 million in ninth-round financing last quarter.

– Pinterest, the 4-year-old social networking and photo-sharing site based in San Francisco, got a fifth round of financing worth $225 million. The venture investors putting up the capital included early funders Andreesen Horowitz and Bessemer Venture Partners.

– Venture investors including Benchmark Capital and Shasta Ventures ponied up a total of $60 million in third-round financing for Inc., a 3-year-old San Francisco firm that creates online platforms for neighborhood communications.

Overall, Bay Area companies’ investment total of $3.1 billion in the quarter far outpaced every other U.S. region. No. 2 was the mid-Atlantic region, which includes New York City, with $1.5 billion worth of deals.

Werner said the expected crop of Bay Area IPOs expected this year, after Twitter Inc.’s blockbuster deal last year, will be needed to help VC firms show hefty returns to investors and thus attract a new capital.

Amid continued reluctance by many pension funds to invest in venture capital since the 2008 markets crash, "There are a lot of VC firms that need to raise money," Werner said.


  4 Q 2013 3 Q 2013 2 Q 2013 1 Q 2012 4 Q 2012
Number of Financing Deals 250 295 292 288 311
Amount Invested ($M) $3,102.04 $3,651.5 $3,044.6 $2,858.9 $3,477.2


Dropbox Inc. Online (cloud) storage systems San Francisco Third Round $250 Undisclosed venture investor(s)
Pinterest Inc. Social networking/photo-sharing site San Francisco Fifth round $225 Andreesen Horowitz, Bessemer Venture Partners, Fidelity Growth Partners Europe, Pequot Ventures
Nest Labs Inc. Digital thermostats/home automation Palo Alto Third round $150 Undisclosed Venture Investor(s)
View Inc. Large-scale architectural glass Milpitas Sixth Round $100 Madrone Capital Partners
Box Inc. Online (cloud) content management and file-sharing Los Altos Ninth Round $100 Bessemer Venture Partners, Coatue Management LLC, DST Systems Inc., Itochu Technology Ventures Inc., Macnica Inc., Mitsui & Co., Telefonica, Telstra Corp.
Turn Inc. Real-time marketing apps for ad agencies Redwood City Sixth Round $80 Blackstone Group, Clearbridge Partners Ltd., Fidelity Investments, Firsthand Technology Value Fund, Focus Ventures, Northport Investments, Norwest Venture Partners, Pine River Capital Management LP, Shasta Ventures, Trident Capital Inc. Social network platform for neighborhoods San Francisco Third Round $60 Benchmark Capital, Comcast Ventures, Greylock Partners, Kleiner Perkins Caulfield & Byers, Shasta Ventures, Tiger Global Management LLC
Planet Labs Inc. Micro-satellites/space analytics technology San Francisco Second Round $51.8 AME Cloud Ventures, Capricorn Investment Group LLC, Data Collective, Draper Fisher Jurvetson, Felicis Ventures, First Round Capital LLC, Founders Fund Management LLC, individual investors, Industry Ventures LLC, Innovation Endeavors, Lux Capital, O’Reilly AlphaTech Ventures LLC
Glassdoor Inc. Career and workplace review community Sausalito Fifth round $50 Battery Ventures, Benchmark Capital, Sutter Hill Ventures, Tiger Global Management LLC
Nutanix Inc. Infrastructure for cloud computing San Jose Fourth Round $46 Battery Ventures, Greenspring Associates, Khosla Ventures, Lightspeed Venture Partners, Morgan Stanley, Riverwood Capital LLC, SAP Ventures

*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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