Venture capitalists invested $13 billion in 1,114 deals in the second quarter of 2014, according to the MoneyTree Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.
Quarterly venture capital (VC) investment activity rose 34% in terms of dollars and 13% in the number of deals, compared to the first quarter when $9.7 billion was invested in 985 deals. The total dollars invested in Q2 2014 marks the largest quarterly investment total since $13.1 billion was invested in Q1 2001. VC investments for the first half of 2014 reached $22.7 billion, the highest first half total since 2001.
The software industry received the highest level of funding of all industries, up 50% from the first quarter to $6.1 billion invested during Q2. The software industry also counted the most deals in Q2 at 454, a 7% increase from Q1.
The biotechnology industry was the second largest sector for dollars invested, with $1.8 billion going into 122 deals, up 69% in dollars and 7% in deals from Q1. The increase in dollars invested can be at least partially attributed to two large later stage funding rounds totaling nearly $320 million.
The medical devices and equipment industry also experienced an increase from Q1, rising 8% in dollars and 12% in deals, to $649 million in 73 deals.
Venture capitalists invested $2.7 billion into 270 internet-specific companies during Q2. This investment level is 18% higher in dollars and 20% larger in deals than Q1, when $2.3 billion went into 225 deals. Two of the top 11 deals for the quarter were in the internet-specific category, a discrete classification assigned to a company with a business model fundamentally dependent on the internet, regardless of the company’s primary industry category.
Seed stage investments rose 46% in dollars and 20% in deals, with $189 million invested in 55 deals in Q2. Early stage investments rose 17% in dollars and 9% in deals, with $3.8 billion going into 522 deals. Seed/early stage deals accounted for 52% of total deal volume in Q2, compared to 53% in Q1. The average seed deal in Q2 was $3.4 million, up from $2.8 million in Q1. The average early stage deal was $7.3 million in Q2, up from $6.8 million in Q1.
Expansion stage dollars rose 53% in Q2, with $5.7 billion going into 308 deals. Overall, expansion stage deals accounted for 28% of venture deals in Q2, up slightly from 27% in Q1. The average expansion stage deal was $18.7 million, up dramatically from $14 million in Q1 2014, due in part to the largest deal of the quarter an expansion stage deal.
Investments in later stage deals increased 25% in dollars and 19% in deals to $3.2 billion going into 229 rounds in Q2. Later stage deals accounted for 21% of total deal volume in Q2, up slightly from 20% in Q1, when $2.6 billion went into 193 deals. The average later stage deal in Q2 was $14 million, up from $13.3 million in Q1.
First-time financing (companies receiving venture capital for the first time) dollars increased 48% to $1.9 billion in Q2, while the number of companies rose 20% from Q1, to 351. First-time financings accounted for 14% of all dollars and 32% of all deals in Q2.
Software companies captured the largest share of first-time financing, accounting for 40% of the dollars and 44% of the deals, with 155 companies capturing $743 million. First-time financings in the life sciences sector rose 3% in dollars from Q1, with $267 million going into 32 companies, compared with 38 companies receiving $261 million in Q1.
The average first-time deal in the second quarter was $5.3 million, a jump from $4.3 million in Q1. Seed/early stage companies received the bulk of first-time investments, capturing 57% of the dollars and 75% of the deals in Q2.