Venture capitalists made fewer than half the number of deals in San Diego in 2016 than they did in the prior year, according to a MoneyTree report by PricewaterhouseCoopers and CB Insights.
A total of 103 venture capital deals were made and about $1.28 billion invested in San Diego, a significant reduction compared with 2015 and 2014, the report said.
The number of deals fell by more than 58 percent, from 247 in 2015 to 103 in 2016, according to MoneyTree.
The dollar amount also shrunk, with the value of investments in San Diego in 2016 down about 31 percent compared with 2015.
The fourth quarter of 2016 was the most lackluster compared with the preceding quarters, with deals valued at about $179.2 million, compared with more than $300 million in the other quarters of the year, according to the MoneyTree report.
Twenty deals were done in the fourth quarter, the fewest in a quarter throughout the year.
“You see a pretty substantial pullback in Q4 and in the second half of 2016,” said Ryan Spencer, a PwC partner in San Diego.
In the second half of 2016 in San Diego, investment was down 35 percent compared with the first and second quarters, from about $773 million to about $502 million.
National Picture
The reduction in deals and the dollar amount in invested in 2016 is similar to what’s happening nationally, Spencer said.
“The trend we’re seeing, even though it’s more pronounced in San Diego, does align with trends at the national level and in many other regions across the country,” he said.
It would have been difficult to beat 2015, a “pretty solid year” with just under $1.9 billion in VC investment in San Diego, even without election cycle uncertainty that likely spooked some investors, Spencer said.
Venture capital investment in the fourth quarter nationwide set eight-quarter lows for both deals and dollars, with total deals coming in below 1,000 for the first time since the fourth quarter of 2011, MoneyTree said.
However, while deal flow in San Diego slowed in 2016, the average deal size rose 64 percent compared with 2015, Spencer said.
The average deal in the region in 2016 was about $12.4 million; the prior year, it was about $7.5 million, according to MoneyTree.
San Diego’s biggest chunk of investment dollars in 2016 — about $522 million of the $1.28 billion invested — went to expansion-stage companies, according to MoneyTree. Investors pumped roughly the same amount of money — about $306 million — into seed and early-stage companies as into later-stage companies, which received about $293 million.
As is typical in San Diego, the industry sector to attract the most venture capital investment was health care, which received more than $785 million. In 2015, the total was nearly $919 million. The sector in which the second-highest amount was invested in 2016 was companies related to the internet. Firms in that sector, which doesn’t include mobile and telecommunications companies, took in nearly $284 million, about $58.7 million less than in the prior year.
Nationwide in 2016, $58.6 billion was invested across 4,520 deals, a reduction of 16 percent and 20 percent, respectively, from 2015, according to MoneyTree.
Anand Sanwal, co-founder and CEO of CB Insight, called 2016 “a nice reset to 2015s exuberant funding environment.”
“Yes, it was a tougher year in terms of deal activity and funding, but versus 2014, which we can call a more normal period, 2016 compares quite favorably,” Sanwal said. “In 2017, unicorns and mega-rounds could see some of the same headwinds as in 2016, but interestingly, the introduction of new big money investors from the likes of Asia and increasingly the Middle East may serve to offset that.”
