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Hey, Big Spender! Venture Investment Soars In January

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Holy shit did venture capitalists spend a lot of money in January.

Investments in new companies shot to $5.8 billion by the end of the month up from $3.5 billion over the same period last year, according to data from CrunchBase.

It’s only one month, not a full quarter, but it seems like venture investors are setting the stage for a very, very active year.

Software investments led all categories with just over $1 billion committed to deals, up from $597.3 billion last year. But hardware companies, e-commerce startups, mobile technologies, financial services offerings, and health-related technologies all attracted significantly more cash, CrunchBase data showed.

It’s also worth mentioning that while the total amounts that investors committed went up in most categories, the number of investments made by venture capitalists actually declined in six of the top 10 investment sectors by capital committed compared to last year’s figures. This lends credence to the notion that prices for companies continue to climb.

The pace of investors’ commitments has caused some industry watchers to wonder whether the market is heading for some sort of reckoning.

“As soon as people start pouring money into a sector, that’s when we say we better slow down,” said one investor at a multi-billion-dollar venture capital fund. Meanwhile, limited partners are especially concerned about later-stage valuations, which seem… frothy.

“The later stage stuff is getting scary on the multiples,” said one investor at a large fund of funds. The last time venture investors put this kind of money to work in deals was in 2010, when VC-backed companies raised over $5.9 billion in deals.

Investments from VCs keep rising even as the amount of money venture investors raise from limited partners continues to slide. Data from Thomson Reuters and the National Venture Capital Association pegs the amount of capital that venture firms have raised at $16.7 billion in 2013, down from $19.6 billion in 2012.

Meanwhile, investments into startups climbed in 2013 to $29.4 billion, up from $27.3 billion in 2012 and nearly level with the $29.7 billion committed in 2011, according to the NVCA.

Still investors are loath to define the market as a “bubble” despite the return of hedge funds and rising valuations.

A lot of this can be attributed to a movement from earlier stage to later stage deals. As the chart below shows, a lot of the money from the biggest spenders in January went to companies that had raised at least two or three rounds of financing.

Some of these later-stage fundings — like the $101 million round raised by virtualization technology developer Nutanix, the $250 million Dropbox raised, or the $112 million for One Kings Lane – are all later-stage deals. The $30 million second tranche of a Series A for healthcare startup Oscar, or the $122.5 million for shaving company Harry’s, seem a little less… typical.

As other industry professionals have noted, there’s a bifurcation in Series A financing that’s happening, as well. Even the amount of money that early-stage investors are spending for angel, seed, and Series A round deals is increasing, according to data from CrunchBase.

These numbers may just be an anomaly, but if investors keep up the pace, 2014 could signal a new beginning for an industry that had been trying to find its footing – or it could be another sign that VCs are walking closer to the edge.