A look at who was spending, on what, in the first quarter

This morning, the research firm CB Insights, in partnership with the services firm PwC, released a report on the state of VC in the first quarter of this year. It does a great job of breaking down what’s what, so we’re basically just cutting and pasting a handful of its biggest takeaways here and adding a little bit of context in case it’s helpful.

1.) U.S.-based venture backed companies raised $13.9 billion in the first quarter, across 1,104 deals. That’s up 15 percent and 2 percent from the first quarter of 2016 but way below the amount of activity we saw in 2015. (VCs invested more than $20 billion in the second quarter of 2015, for example.) This is a narrative we’ve been watching since early 2016, when an abrupt nosedive in the share price of LinkedIn (months before its acquisition) launched what would become a sustained freakout by both public and private investors.

2.) This one surprised us, but seed activity as a proportion of all deals is on the decline. Seed rounds made up one quarter of all deals in the first quarter; over the last few years, that figure has been north of 30 percent. We’re not immediately sure of how to explain this one, but it’s likely that angel investors are still waiting for some of their older deals to exit. (These things typically take far longer than newer angels in particular appreciate.) There could also be a growing disconnect between the prices founders are asking for and what angel investors are willing to pay. The most optimistic scenario is that angels have grown more discerning about what to fund. (Just kidding. That probably isn’t happening.)

3.) Corporates and corporate VCs are as active as ever, participating in 26 percent of all U.S. deals in the first quarter, which matches their rate of participation in the third quarter of last year, which itself was an eight-quarter high. This one won’t surprise industry observers. When even Sesame Street launches a venture fund . . .

4.) Healthcare is on the rise, with a growing number of VCs enamored of the broader sector, meaning biotech and medical devices and other related equipment. Indeed, according to this new report, healthcare represented 17 percent of all deals in the first quarter, a two-year high. Interestingly, digital health specifically slid 23 percent, though a huge round by the blood testing startup Grail propped up the quarterly dollar amount of capital invested. We’re not sure why more money didn’t flow to biotech startups that are looking to improve on everything from cancer screening to understanding the human microbiome via AI. Possibly investors are taking a deep breath, having already funded a lot of startups that are still testing out their hypotheses.

5.) International investors have shown up in a big way. Whether they’re here to stay is an open question, but international sources of capital represented 25 percent of investors in later-stage deals in U.S. companies in the first quarter, says this new report. The reason, we’d guess: While overzealous U.S. investors have grown weary of some of these unicorn companies — including the hedge funds and mutual funds that have largely backed off over the last 12 months or so —  foreign investors, with not a lot of better options to park their capital, see opportunity. This is especially true as valuations for some of these privately held giants start to slip a bit.

You can check out the full report here; it has a much more granular information that you might find interesting.