Silicon Valley again demonstrated its dominance in venture capital – giving and receiving – in the first quarter, as Bay Area companies took in nearly half of U.S. venture dollars invested.
Companies in the Valley, San Francisco and surrounding areas got a massive $4.87 billion in first-quarter funding from venture capital firms.
The total invested was up a stunning 70% from the first quarter of 2013 and up 67% from the fourth quarter. The year-over-year percentage increase far exceeded the 44% jump in venture funding nationwide in the quarter, to $10 billion from $6.9 billion a year earlier. It was the biggest quarter for U.S. funding since 2001, according to data firm CB Insights.
The number of companies getting venture financing in the Bay Area totaled 307 last quarter, up from 255 a year earlier and up from 272 in the fourth quarter.
Among individual cities in the region, San Francisco led the funding wave as tech start-ups continued to blossom in the urban core: A total of 136 San Francisco-based companies received venture money in the quarter, by far the most for any city in California. Palo Alto and Menlo Park were tied at a distant second, with 21 companies each. Nationwide, New York City ranked second, with 93.
"Not only has San Francisco become the top location for entrepreneurs to base their headquarters, but we also are seeing several VC firms moving to the city or adding a new office there," said Rod Werner, head of tech banking for City National in Palo Alto.
The strong market for initial public stock offerings over the last year has helped drive venture funding nationwide. A total of 35 venture-backed companies went public in the first quarter, the most since 2000, according to CB Insights.
But market conditions may have simply gotten too frothy, Werner said. "Many VC firms have been concerned about the valuation multiples they've been seeing in the market for the past several months," he said. "We are starting to see the impact on valuations for pre-IPO tech companies as a result of the pullback in public tech stocks over the last month."
For now, "the IPO bar has definitely been raised," even for private firms with strong fundamentals, Werner said.
Still, the first-quarter venture financing surge should be a tailwind for the economy in the near term, particularly in California, as recently funded companies put their cash to work.
The biggest Bay Area venture beneficiary in the first quarter by far was Cloudera, which took in $740 million in Series F funding from Intel Capital. The deal gave the chip titan an 18% stake.
Palo Alto-based Cloudera, founded in 2009, helps companies use so-called Hadoop software to crunch and manage "big data" – the increasing torrent of information available to corporate marketers, medical researchers, government agencies, etc., about their customers and market trends.
Cloudera is in a major fight for supremacy with Hortonworks, another Hadoop vendor also based in Palo Alto. Hortonworks, a Yahoo Inc. spin-off, nabbed $100 million in Series D funding in the first quarter from a consortium of venture firms.
No. 2 on the Silicon Valley deal list in the quarter was TangoMe. A group of 10 venture firms pumped $280 million in Series D money into the Mountain View firm. TangoMe, which has 200 million registered users, provides the free Tango app for video calls, texting and other communications via smartphones.
In the e-commerce sector, San Francisco-based One Kings Lane attracted $112 million in Series E funding. The company, launched in the depths of the recession in early 2009, offers discounted furniture and home-decor items online through "flash sales." One of its founders is Ali Pincus, the wife of Zynga co-founder Mark Pincus.
EQUITY FINANCINGS FOR SILICON VALLEY VENTURE-BACKED COMPANIES*
|1 Q 2014||4 Q 2013||3 Q 2013||2 Q 2013||1 Q 2013|
|Number of Financing Deals||307||272||320||291||255|
|Amount Invested ($MM)||$4,872.0||$2,917.9||$3,409.9||$2,879.5||$2,522.2|
TOP 10 DEALS IN SILICON VALLEY
|COMPANY NAME||DESCRIPTION||CITY||ROUND TYPE||RAISED ($MM)||INVESTORS|
|Cloudera||Enterprise big data platform||Palo Alto||Series F||$740||Intel Capital|
|TangoMe||Mobile messaging services||Mountain View||Series D||$280||Draper Fisher Jurvetson, Alex Zubillaga, TransLink Capital, Access Industries, Qualcomm Ventures, Bill Tai, Jerry Yang, Alibaba.com, Toms Capital, Shimon Weintraub|
|Palantir Technologies||Big data software applications||Palo Alto||Series H||$171.6||Founders Fund, Undisclosed Investors|
|One Kings Lane||Flash sales site for the home market||San Francisco||Series E||$112||Kleiner Perkins Caufield & Byers, Tiger Global Management, Greylock Partners, Mousse Partners, Fidelity Investments, Institutional Venture Partners, Scripps Networks|
|HeartFlow||Noninvasive diagnosis of coronary artery disease||Redwood City||Series C||$104.7||U.S. Venture Partners, Capricorn Investment Group, Sandbox Industries, HealthCor Management, Orkila Capital|
|Nutanix||Enterprise virtual computing platform||San Jose||Series D||$101||Lightspeed Venture Partners, Battery Ventures, Khosla Ventures, Riverwood Capital|
|Hortonworks||Open-source development software||Palo Alto||Series D||$100||Benchmark Capital, Passport Capital, Index Ventures, Tenaya Capital, BlackRock, Yahoo, Dragoneer Investment Group|
|DocuSign||Digital transaction management||San Francisco||Series E||$85||Kleiner Perkins Caufield & Byers, Sigma Partners, Google Ventures, Ignition Partners, Accel Partners, Salesforce, Second Century Ventures, SAP Ventures, Comcast Ventures|
|Credit Karma||Credit score monitoring and reporting||San Francisco||Growth Equity||$85||Tiger Global Management, Susquehanna Growth Equity, Ribbit Capital, Google Capital|
|Turn||Real-time insights for marketing||Redwood City||Series E||$80||Norwest Venture Partners, Shasta Ventures, Focus Ventures, Trident Capital, Northport Investments, Pine River Capital Management, ClearBridge Investments, Firsthand Technology Value Fund|
*Quarterly tallies consist of equity rounds completed in the quarter and in which a venture capital or corporate venture firm participated in the round.
|The content of Venture Capital Report is compiled from data and sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Opinions expressed are those of the authors or the interviewees and are not necessarily the opinions of City National Bank, member FDIC. This publication is intended to be a source of general information regarding subject matters of interest to our clients. The effectiveness of the advice or suggestions presented, if any, will depend on the reader's situation and are for the reader to determine. If investments are discussed, the discussion should not be considered or relied upon as specific investment advice directed to the reader's specific investment objectives, nor should any discussion of specific securities be taken as a solicitation or recommendation for any reader to buy or sell such securities. City National Bank (and its clients or associated persons) may at times have positions in securities and investments discussed from time to time in this publication and may make additional purchases or sales inconsistent with the discussion. City National Bank, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules and regulations in the areas of law, tax and accounting are subject to change and open to varying interpretations. The reader is encouraged to consult his or her own tax and legal adviser.|