While the numbers might indicate that Washington, D.C. area startups saw a lot of venture capital flowing their way in the fourth quarter of 2016, that's almost entirely thanks to the $1.2 billion raised in December by Internet satellite startup OneWeb according to a new report from CB Insights and PriceWaterhouseCooper. The SoftBank-led round dwarfed the $241 million raised by the rest of the region for the quarter. OneWeb's funding was the largest funding of the quarter globally, easily outstripping the number two in the U.S., the $210 million raised by WeWork, and the number two on the planet, the $500 million raised by Chinese mobile software services company Yixia.
OneWeb was the exception in a lot of ways. Deals dropped in number and size at the national and global scale compared to the same quarter last year, but the OneWeb deal pushed D.C.'s dollars much higher, with a dip by two to 38 deals for the quarter. The decrease in deals was especially noticeable at the higher end, where there were only 11 rounds of $500 million or more in the U.S., the lowest number in five quarters.
In terms of where the money is going, there's a lot of interest in artificial intelligence in the U.S., up 16 percent to $705 million. Meanwhile, cybersecurity funding dropping by about half in the U.S., to $370 million. We've been watching the cybersecurity sector closely this year though, and while the number of cybersecurity funding rounds in the area did drop compared to the incredibly hectic summer, the industry was far from dormant at the end of 2016. The $10 million Invincea raised and $4 million raised by Virgil Security make that clear, as do deals not counted in the report, like the $19 million Air Force contract picked up by Endgame.
Still, venture dollars ebbed plenty this past year. The $58.6 billion in 4,520 deals is just 80 percent of what was spent in 2015, and on 84 percent of the number of companies. Though the $2.7 billion that the D.C. area raised in 2016 is 26 percent higher than the year before, it's still a slightly misleading number. The jump in dollars came in 176 deals, 10 fewer than the year before, distorted by OneWeb.
"A tightening market isn't the same as a panicking one."
Looking at those numbers, the question of a tech bubble emerges, as it always does when there's a minus sign next to a number. The downward trend is certainly not a site for optimism, but it's a gentler dip than last year. If there was a bubble that is vanishing, it's starting slow. That could accelerate, but a tightening market isn't the same as a panicking one, at least not yet. 2017 is going to be a year of many surprises. For now, while the numbers aren't great for entrepreneurs counting on the venture capital faucet staying wide open, the report's authors argue there's not a bubble popping so much as a foundation stabilizing.
"2016 served as a nice reset to 2015's exuberant funding environment," CB Insights co-founder Anand Sanwal said in a statement. "But for those who predicted 2016 would be the popping of the venture bubble, it was not. 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."
