Slow summer? More like slow year. The second quarter saw the fewest number of venture capital deals since the end of 2009, and the amount of capital invested in the last four quarters continues to fall short of the levels seen throughout 2011 and the first half of 2012, according to research firm Pitchbook. It appears the tech industry is in a rut.
"We haven't found a smoking gun," Adley Bowden, Pitchbook's director of research, told Fast Company. It's possible investors are bored, choosing instead to wait for the new major disruption, he added. Or, that company valuations are a bit high, "but that's more anecdotal at this point."
The number of exits—acquisition, buyouts, and IPOs—have likewise slowed. The first two quarters of 2013 saw the fewest number of exits in three years: 107 in the second quarter and 102 the one prior. It's not all bad news. In spite of the series A crunch, investors are increasing funding at the seed stage, averaging $212 million quarterly this year, compared with 2009's $56 million.
Tracking activity in private equity and venture capital, Seattle-based Pitchbook is itself a startup, founded by John Gabbert in 2007 with the idea that he could build a research firm that took advantage of technology to present premium data-driven reports. An exemplar of this, Pitchbook on Tuesday debuted a quicker, smarter research platform optimized for mobile screens with predictive search (a la Google).
Working with a wealth of data, Bowden is able to point to some intriguing trends within venture capital. After the explosion in social media fueled by Facebook, Twitter, Path, and a host of other upstarts, investors have grown weary of investing in the sector, he said.
But Bowden insists "the money's there"—investors are just waiting for the next big thing. "The interesting thing about venture capital is the first wave of investment into a new idea or industry," he said. "At the moment, what's the next wave of things? … There's not an obvious group of companies blowing up."
Though Bowden couldn't point to a specific time frame when investments will pick up, the data shows deal flow stalled to a three-year low in the first quarter, with 778 deals closed—a far cry from the recent high of 1,203 in the second quarter of 2012. The amount of capital invested, however, increased to $7.9 billion, the highest in a year. Bowden said he expects to see more deals by the end of next year "with different things like health care laws settling out."
Though investments in health care remained steady between $7.3 billion and $8.7 billion from 2007 to 2012, the sector has had a slow start this year, with only $2.9 billion invested in the first five months of 2013. Part of this has to do with the overall slump in the market, but much of it can be attributed to uncertainty around Obamacare coming into effect. Doubt had led some firms to focus less on health care, as Scale Venture Partners did in 2011, but Bowden says the changes also present new opportunities.
Still, investors remain enthusiastic about some fields, including mobile broadly, the Internet of Things, big data, and enterprise—the last of which also happens to be Pitchbook's specialty.
"There's definitely a lot of room for disruption on the business side of things. Businesses stick with what's worked in the past so there's less experimentation with new technologies," Bowden said. "It's created a lot of room for people to come in with better services and products and compete really effectively. That's sort of our story, coming in with a platform and technologies that's a generation or two ahead of what the current market is using."
[Images: Pitchbook, Flickr user Jason Manion]