What’s the Pulse on 2017 Midyear VC Investment?

nazar /  Aug. 16, 2017


Every few weeks, Osage University Partners hosts a webinar that dives into a specific technology sector with the intention of helping the technology commercialization professionals at our partner institutions better understand current market behaviors.

We realize, however, that financing trends can dramatically shift in only one quarter. We’re past the midyear mark in 2017 and so it seemed the opportune moment to gather our investment team together and share observations on the state of startup financing trends across all sectors.

My goal with this blog post is to recap the commentary from this webinar, provide guidance regarding how to think about each of these sectors overall, and cover current areas of investment interest.

So, what is the pulse on midyear venture capital investment? Which sectors are facing funding challenges and which are flush with cash?

Overall VC Activity

Source: NVCA


  • VC activity overall seems to be returning to historical norms after the 2015 surge. 2016 and 2017 look to be flattening as far as total number of deals, but not necessarily in the amount of capital invested. In follow on investments, the amount of capital being invested is stabilizing to norms before 2015.
  • There has been a decrease in the number of first financings, with angel and seed stage investors representing the biggest drop off in VC activity over 8 straight quarters. This may not be due to limited capital in these stages, but instead the way startups are changing their strategy for growth in the early stage. Early stage companies are going through corporates or large accelerators, growing their business plans, then launching straight into raising a series A. Startups are getting more mentorship in these programs (e.g., I-Corps, accelerators), getting customers early on, and may not need to raise as much or any money at the seed stage.

Number of Deals Per Quarter

Source: NVCA


  • The number of deals per quarter has been declining since Q2 2015. In that decline, the late stage deals show an increase in number of financings.
Source: NVCA/Pitchbook


  • Sector trends have remained consistent since 2010, with software taking around 40% of the total number of deals financed each year.

VC Activity in Life Sciences

Source: NVCA


  • The amount of capital being invested in life science deals in 2017 is on track to be better than 2016 and may increase further in 2018. Deal value for life science startups may hit a decade high this year.
  • There is a growing number of device, diagnostic, and healthcare supply deals.


  • Therapeutics has been the main stay of venture investment in life sciences both in number of deals and number of dollars invested.
  • 2015 was a frothy year and things have since leveled out. The total number of deals decreased in 2016 to 534, the lowest in 4 years, and dollars invested decreased from a record high of $10B seen in 2015 to $8.1B in 2016.
  • Oncology remains the most active therapeutic area for investment, with the most prominent emerging area being orphan/rare diseases.
  • The dynamics of early stage therapeutics deals has changed. In 2016, the total number of deals closed was the lowest in the last four years, yet total dollars invested was the highest since 2015. The conclusion is that there is greater capital being deployed per deal.
  • In 2016, Series A investments increased dramatically: from 81 deals in 2015 to 126 in 2016. This indicates a growing interest of VCs in early stage investment with increasing participation from Corporate VCs (23% in 2016 to 31% in 1H2017).
  • Only 28 companies went public in 2016 versus 42 in 2015 and 66 in 2014. M&A activity seem to be steady with around 20 deals in both 2015 and 2016.
  • For early stage therapeutics investment, there has been an increase in VCs taking on a company formation role, by raising new funds purely for company formation and actively looking for early stage technologies to start companies around.


  • Devices lag therapeutics in investment activity: total dollars invested in device companies ($3.8B) was roughly 50% of that invested in therapeutics companies ($8.1B) in 2016. Device investments have continued to decline from a 2014 high in terms of deals done and dollars invested.
  • 2017 investment activity has started off strong, with $2.9B invested through the first half of 2017 vs $3.8B in all of 2016. This activity is primarily driven by a few outliers and expectations are that funding activity will be roughly flat and comparable to 2016.
  • J&J leads the sector with 7 investments. There is significant activity from other strategic device investors as well as an increased interest from family offices and PE funds.


  • Diagnostics have shown momentum in early 2017, and are on track to exceed the total number of Series A deals that were seen in 2016. Total Series A investments also increased from $236M in 2015 to $487M in 2016. Investment levels in 2017 should be similar to 2016.
  • This sector continues to struggle with exits making it challenging for investors. M&A activity decreased from 8 deals in 2015 to 4 in 2016; this continues a steady decline over the past 3 years.
  • There were no IPOs in 2016 and 2017, likely due to poor after-market performance in prior IPOs, and there have been no public offerings in 2017 so far.
  • A recently emerging trend is diagnostic investment from traditionally tech VCs. This was evident in 2016 and has continued into 2017.
  • The space is seeing robust activity from angel investors, corporate VCs, and investors from outside the U.S.


  • 2017 has been a year of public offerings in an IPO market which had previously been closed. IPO performance has been mixed: there’s been substantial down pricing from the prior private round.
  • There has been a dramatic increase in early-stage cybersecurity funding in 2017. Following the investment surge between 2012–2014, early stage cybersecurity companies experienced a drought in 2015–2016, but the drought appears to be over.
  • Emerging Trends: Serverless architecturestreaming dataedge computing, and AI.
  • There’s a lot of money being thrown around the AI space. Valuations are extremely high, and a few rare companies have built real businesses. Investors should place bets on more vertically integrated AI companies where AI is just a piece of the stack.
  • Investors come into software deals at different stages: at pre-product (prototype), at product, or later on in Series A when there is commercial traction. $1M in recurring revenue will justify a healthy Series A valuation in software startups.


  • In software, you can garner 5–10x exit multiples on revenue. In hardware, exit multiples are often 1.5x-3x on revenue, so it is a difficult area to exit with big returns. Interesting hardware startups have found ways to enhance their offering with software to generate recurring revenue streams that increase their exit valuation.
  • Recent data shows hardware startups are seeing an 81% uptick in valuation between Series A and Series B, versus just a 42% uptick in software.
  • VCs are returning to core technology investing, and “big swing” investments are on the rise in areas such as quantum computing and autonomous vehicles.
  • Wearables investing has fallen off. They have moved past the peak of the hype curve, but commoditization and failures in predicting consumer interest has reduced the appetite for new concepts.
  • Emerging trends: Edge Processors, Robotics, and Nontraditional computing.
  • Autonomous driving has opened up new forms of engagement with automotive OEMs and Tier 1s who have shown an appetite for early acquisitions and NRE relationships on the way to a design win.

Our academic partners can request a link to the webinar by contacting Natasha Azar at nazar@osagepartners.com.