The third quarter 2013 venture capital statistics for the D.C. area have been out for more than a month now on a macro level. Back in October we took a look at how well the D.C. region did as a whole when it came to venture deals, raising $446 million among 53 deals. Compared nationally, this is the best D.C. has done in years, and hopefully it's a sign of good things to come. However, it's important also to dive deeper into the statistics to take a look at what is happening on a local level, like what industry had the most deals, where the money came from and how it was split.
According to the PricewaterhouseCoopers Money Tree Report, of the $446 million invested in local companies between July and the end of September, a mammoth 71.3 percent went to software companies. The exact total was $318 million. Software companies also took the bulk of the deals at 27 of the 53, but that pretty much goes without saying with such a hefty share of the total VC money. Second behind software was telecomm ($34 million between two deals) and biotech ($28 million among seven deals). And the focus on software is not just a local phenomenon, but a nationwide trend. Of the $7.8 billion of total VC investments, $3.6 billion went to software companies in the U.S., nine of which were in the top 11 deals nationally for the third quarter. Software is a big deal everywhere, but especially here in D.C.
Analyzing the VC firms backing the 53 deals around the D.C. area, most of the individual VC investments came from the local area for third quarter deals. In total, there were 96 investments by VC firms (with several firms signing onto each deal in many cases). Of those, exactly half – 48 – came from companies in the D.C. region. And obviously, that's a sign of a healthy VC and startup ecosystem – D.C. investors are backing lots of D.C. businesses. Only six deals came from each of California and New York, which can arguably mean both good or bad things. While this trend does not take into account D.C.-area VCs sending money elsewhere, it's still a spectacular trend to see a lot of D.C.'s capital going to its own companies.
Lastly, and probably the most discouraging trend, is the distribution of capital among the D.C. companies funded in Q3. While the $446 million raised last quarter was huge for the region's startup hub, it's arguably misleading for one reason: 69.2 percent of the total capital went to just six of the funded companies. Evolent Health, Clarabridge and Virtustream, in particular, each raised massive venture capital rounds, and combined they took in about $200 million. Quite simply, without them, the third quarter would've been dismal.
But big deals shouldn't be something frowned upon. They should be encouraged. And even though the capital distribution is far from being healthy, big deals help legitimize the D.C. area as an incubator for tech. Moreover, with a healthy dose of venture capital from D.C. investors to D.C. companies, this cycle should continue to grow.
