Q1 2017 – Deal Volumes Slow as Terms Favor Investors

In the first quarter of 2017, both deal volumes and aggregate dollars raised decreased from prior quarters. In Q1 2017, Cooley handled 156 disclosable deals representing more than $2.1 billion of invested capital. Deal volume was down by 17% from Q4 2016, while invested capital decreased by 25% from the prior quarter. Year over year, the deal volume was down by 10% from Q1 2016, while invested capital decreased by 49% relative to the same period in 2016. The mix of deals during the quarter remained relatively consistent to prior quarters. We saw a slight decrease in Series A and C deals, while a small increase was seen in seed, Series B and Series D+ transactions.

Median pre-money valuations increased slightly in seed deals, while decreasing in Series A and D+ transactions. Series C deals, however, included a meaningful increase in pre-money valuations jumping from a median of $65 million in Q4 2016 to $131 million in Q1 2017.

Deal terms during the quarter slightly favored the investor compared to recent quarters. For example, we saw increases in deals with full participating liquidation preferences, as well as increases in deals including pay-to-play provisions.

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Commentary from Adam Valkin

Adam Valkin, managing director at General Catalyst, sat down with us to discuss his view on the state of VC investing.

Outlook on 2017: The market has really benefited from a new influx of capital. In the consumer space, however, a lot of investors are taking it slower as they figure out what’s next and when.

On geography: Venture capital is very local. It helps for us to be present on a day-to-day basis. The major innovation cities have ecosystems where one founder may lead us to another and where our companies benefit from our relationships with influencers, co-investors and talent. With early-stage companies, we try to stay focused from a geographic perspective.

On nascent sectors: There is a lot of excitement and conviction about what the future will look like, but a lot of uncertainty about what the timing of that will be. A question on people’s minds is: What is the right timing to invest in new platforms?

What’s next: We are entering a phase in which a lot of entrepreneurs are thinking about a full-stack rebuild of the entire consumer experience. You are seeing this in living, travel, workspace, food, insurance and financial services.

Read Cooley’s full interview with Adam Valkin.

GO Visualize (powered by Tableau)

Welcome to Cooley GO Visualize, which allows you to drill down on trends gleaned from deals we’ve worked on with entrepreneurs. The data you see here will be updated in conjunction with our quarterly VC Financing Reports. We hope you’ll find this and other Cooley GO resources such as the Convertible Note Term Sheet Generator and our guidance in Raise helpful in navigating and accelerating your fundraising efforts.