Venture capital funding in Silicon Valley and the San Francisco Bay Area pulled back to more normal levels in the third quarter after surging in spring to peaks last seen in 2001. But the region easily retained its crown as the top U.S. destination for venture dollars.

A total of 332 companies in the area got VC funding in the quarter, down 8% from 361 in the second quarter, according to data firm CB Insights. Total dollars invested plunged 46%, to $4.33 billion from $8 billion in the previous quarter.

The second quarter venture total had been swelled by a round of huge late-stage financings for some of the biggest "sharing economy" upstarts, including San Francisco-based Uber. The taxi-alternative company got a $1.2-billion infusion in spring. "The second quarter was an anomaly," said Rod Werner, managing director of City National's Technology Group. "I don't think we'll see those numbers again anytime soon."

Nationwide, venture financing deals totaled 878 in the third quarter, down 10% from the second quarter, while the dollar amount of funding slid 30% to $9.79 billion.

Still, VC funding in the summer quarter was up from the same quarter a year earlier for the U.S. overall and for Silicon Valley, reflecting the hefty cash sums VC funds have available to invest. Nationwide, the number of deals last quarter edged up 2% from a year earlier while total dollars invested jumped 35%. In Silicon Valley, including San Francisco, the number of deals was up 4% in the quarter from a year ago and total dollars invested rose 27%. Companies in the region took in 44% of all venture funding last quarter. New York City was a distant second, with 14%.

Some of the largest Silicon Valley deals last quarter were for companies that analyze "big data" such as consumer spending trends and crime statistics. The region's top deal was a $337-million infusion for Palo Alto-based Palantir Technologies, a big-data analytics firm founded in 2004 and initially funded in part by the CIA. Two other Bay Area big-data firms also made the region's top-10 list of funding deals: Santa Clara-based DataStax and Palo Alto-based MetricStream.

On the consumer side, the home remodeling and design website Houzz, also in Palo Alto, garnered a $165-million investment last quarter. The company, founded by two Israeli emigrants in 2009, has mushroomed into one of the biggest online home-design marketplaces.

Werner noted that rising volatility in stock markets since spring has made some private companies and their backers more reluctant to go public. That has helped continue to drive late-stage financings. Just 18 U.S.-based VC-backed companies went public last quarter, down from 24 in the second quarter and 35 in the first, CB Insights said.

EQUITY FINANCINGS FOR SILICON VALLEY VENTURE-BACKED COMPANIES*

  3 Q 2014 2 Q 2014 1 Q 2014 4 Q 2013 3 Q 2013
Number of Financing Deals 332 361 307 271 320
Amount Invested ($MM) $4332.9 $7998.9 $4871.9 $2910.4 $3409.9

TOP 10 DEALS IN SILICON VALLEY

COMPANY NAME DESCRIPTION CITY ROUND TYPE RAISED ($MM) INVESTORS
Palantir Technologies Big data analytics and visualization Palo Alto Series H - III $336.7 Founders Fund, RRE Ventures, Undisclosed Investors
Houzz Online platform for home remodeling and design Palo Alto Series D $165 New Enterprise Associates, Kleiner Perkins Caufield & Byers, Sequoia Capital, T. Rowe Price, GGV Capital, Digital Sky Technologies, Oren Zeev
Lookout Smartphone security software San Francisco Series F $150 Khosla Ventures, Accel Partners, Goldman Sachs, Bezos Expeditions, T. Rowe Price, Index Ventures, Morgan Stanley, Andreessen Horowitz, Wellington Management, Mithril Capital Management
DataStax Enterprise database technology Santa Clara Series E $106 Kleiner Perkins Caufield & Byers, Lightspeed Venture Partners, Scale Venture Partners, Crosslink Capital, Meritech Capital Partners, Wasatch Advisors, DFJ Growth Fund, Cross Creek Advisors, ClearBridge Investments, Next World Capital, Comcast Ventures, Premji Invest
Thumbtack Online platform for booking local services San Francisco Series D $100 Sequoia Capital, Tiger Global Management, Javelin Venture Partners, Google Capital
Credit Karma Online credit score monitoring San Francisco Growth Equity - II $75 Tiger Global Management, Susquehanna Growth Equity, Google Capital
AppDynamics Application performance management San Francisco Series E $70 Kleiner Perkins Caufield & Byers, Lightspeed Venture Partners, Battery Ventures, Greylock Partners, ClearBridge Investments, Institutional Venture Partners, Sands Capital
MetricStream Enterprise governance, risk, compliance, and quality management solutions Palo Alto Series F $60 Kaiser Permanente Ventures, Goldman Sachs, Sageview Capital
Anki Robotics and AI technologies used in toys San Francisco Series C $55 JPMorgan Chase & Co., Index Ventures, Andreessen Horowitz, Two Sigma Ventures
Radius Intelligence Data and insights for small businesses San Francisco Series C $54.7 Founders Fund, BlueRun Ventures, Glynn Capital Management, Western Technology Investment, Formation 8, Slow Ventures, John Mack, Jared Leto, Yuan Capital

* 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.

 

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