Funding for U.S. and Canadian startups rose across all venture stages in the first quarter, and large exits also ticked up as both M&A and IPO activity gained momentum.
Overall, venture investors put $28.67 billion to work across seed through technology growth stage funding rounds in Q1 of 2018, according to Crunchbase projections. That’s up from $24.2 billion in Q4 and $18.23 billion in Q1 of 2018.
The rise was driven by increased investment at seed, early, and late stage, with round counts also up significantly from the prior quarter. That upward trajectory, particularly at seed stage, could alleviate concerns in recent months about a decline in rounds for the very earliest stage startups. While seed deal counts remain well below peaks hit a couple years ago, projections show they are no longer falling.
Below, we break down the numbers in greater detail, focusing on Q1 investment and round totals, stage-by-stage performance, largest rounds, and biggest exits.
Let’s start with investment totals. Be forewarned: “Up” and “rising” will be much-repeated words in the following paragraphs.
As mentioned, total investment across all venture stages was up both sequentially and year-over-year. The only stage that saw a small decline was technology growth, which is typically volatile from quarter-to-quarter due the small number of deals and large dollar sums involved.
In the chart below, we look at how the numbers compare over the last five quarters.
Round Counts Rebound
After a comparatively sluggish Q4, round counts are on the upswing. Just over 2,700 startups closed funding rounds in Q1, according to Crunchbase projections. That’s a nice rebound from Q4 of 2017, which saw a steep drop in the number of financings, particularly at seed and early stage. However, it’s still below average for the past five quarters.
In the chart below, we look at round counts for the past five quarters, color-coded by stage:
Looking at investment totals for Q1, late-stage dealmaking saw the biggest gains of any stage. Investors put $15.7 billion into late-stage rounds (Series C and beyond) over the first three months of the year, by far the highest total in five quarters.
Below, we take a look at how much capital has gone to late-stage over the past five quarters. As you can see, late-stage startups in Q1 of this year pulled in more than 30 percent more capital than any quarter in 2017.
A key factor behind the late-stage rise may be the mounting piles of cash in the hands of large venture firms. Following the launch of SoftBank’s market-disrupting $100 billion Vision Fund last year, U.S. venture firms have embarked on a supergiant fundraising spree. So far this year, at least six have disclosed new funds targeted at upwards of $1 billion.
A few really, really big rounds also pushed up the totals. Leading in this category is Katerra, a company aiming to shake up the building industry that raised $865 million in Series D financing. Other top mega-round recipients, all Series D, include delivery app DoorDash with $535 million, drug developer Moderna Therapeutics with $500 million, augmented reality firm Magic Leap with $461 million, and zero-fee stock trading tool Robinhood with $350 million.
early-stage funding (Series A and B) also rose in Q1, with startups raking in a projected total of $10.54 billion, by far the highest total in five quarters.
In the chart below, we look at how much money has gone into early-stage quarterly since 2017.
For Q1, the quarter-over-quarter rise was driven by both bigger rounds and more of them. Overall, Crunchbase projects that 898 Series A and B rounds closed in Q1 of this year. That’s up from Q4 but below the prior three quarters. Average round size, meanwhile, was just over $11 million, the highest of the past five quarters.
Big biotech rounds bolstered the quarterly totals. Out of the five largest Series A and B rounds closed in Q1, four were biotech companies. The largest rounds, for $250 million each, went to Celularity, a developer of placental stem cell-based therapies, and Viela Bio, a developer of therapies for autoimmune diseases. Other large bio funding recipients include personal genomics startup Helix, which raised $200 million, and drug developer TCR2, which raised $125 million. The sole tech company in the top five, meanwhile, was UiPath, a provider of business process automation software.
An early-stage round doesn’t always mean immature technology, however. It’s worth noting that some of these big early-stage bio rounds went to startups with fairly mature technologies and product pipelines that were licensed or spun out of larger companies. This is the case for both Celularity and Viela.
Seed Stage Staunches Decline
Towards the latter part of 2017, a lot of articles came out (including some by us) about a marked dropoff in the number of seed-stage financings. The decline was a source of worry across the startup ecosystem, as investors rely on a healthy pipeline of seed-funded companies for later venture rounds.
While the Q1 numbers don’t put all fears to rest, they do offer a bit of comfort. Crunchbase projects that just over 1,500 companies in the U.S. and Canada raised seed or angel funding in the first three months of this year, up about 28 percent from Q4 of 2017.
In the chart below, we look at seed-stage investments and round counts for the past five quarters.
As you can see above the trendline is moving up. However, projected seed deal counts and investment totals for Q1 of 2018 are still the second-lowest quarterly total of the past five.
Exits Pack A Punch
The first quarter of 2018 also brought with it a number of large exits for venture-backed companies, including both acquisitions and public offerings.
For M&A, it was a long-awaited pickup, as the pace of large VC-backed acquisitions was slow for most of 2017.
The largest deals of the quarter were in biotech. One was Celgene’s purchase of cancer drug developer Impact Biomedicines in a deal valued at $1 billion up front and up to $7 billion with milestone payments. The other was Roche’s purchase of Flatiron Health, a cancer data company, for $1.9 billion (not including a 12 percent stake it already owned.)
It was also a decent quarter for IPOs, led by Dropbox’s hotly anticipated debut in March, with the company recently valued around $12 billion. Cloud security provider Zscaler also delivered a solid performance, snagging a recent valuation around $3 billion.
Biotech delivered the highest volume of venture-backed IPOs, with at least six offerings on US exchanges (see list). The largest offerings included drug developers Homology Medicines and Menlo Therapeutics.
It doesn’t take a crystal ball to predict that IPOs will be big in Q2. We’ve already seen the first big internet IPO of the second quarter with Spotify’s unconventional direct listing debut scoring the streaming company a market capitalization over $25 billion.
As for startup funding, it also doesn’t take much soothsaying skill to predict that venture and growth investors, fresh from an epic fundraising binge, will be under pressure to find places to put all their capital. Of course, just who will be the recipients of all that largesse remains to be seen.
Stay up to date with recent funding rounds, acquisitions, and more with the Crunchbase Daily.