Based on the second quarter of 2016, Los Angeles currently accounts for 15.9 percent of the nation’s quarterly VC funding, placing it 2nd in the country, behind San Francisco and ahead of Silicon Valley.
The US as a whole saw a steep rise in VC funding; on the surface it appears as if we’re on our way up to another strong year in investments. However, much like the previous quarter a nice chunk was a $B dollar unicorn round. In this case it was Uber and the amount was a cool $3.5B. This is one of the largest funding rounds that we’ve seen in the US so far. Of course when you start looking outside the US, you find that $3.5B is nothing compared to the $4.5B raised by ANT Financial (Alibaba affiliate) or the $338B raised by China’s state VC fund to fund their startups.
The growth of tech across all industries is fueling new ideas. However, VC’s continue to scale back a bit on the rate in which deals are closing. The number of VC investments has been on a steady slide over the past four quarters. So why is this happening if money is still being raised?
- It’s still cheap to borrow money (for now)
- The IPO’s this year have been almost non-existent. Twilio’s recent IPO should bring back some confidence, but 2015 IPO’s are still struggling to impress
- Investors continue to focus on bringing their startups to profitability by controlling spending. Expect them go through more due diligence with startups shopping for repeat funding rounds. Oversaturated subsectors like on demand food services will start to see more failures
- Public to private valuations are still not in line with each other.
For more information contact Devon Parry.
Visit the JLL Los Angeles Research webpage for additional market insight.