Early stage VC holds up (even as late stage plunges)

Venture capital investment has slowed in the third quarter, but estimates reliant on data available at quarters’ end overstate the extent of early stage declines.

According to projected funding totals from Crunchbase, early stage investment in U.S. startups held up at historically high levels in the third quarter.  Seed, venture capital and strategic investors are on pace to invest $8.8 billion (reported to date $7.7 billion) in seed and early stage rounds in the third quarter. That’s about on par with a projected $9 billion in Q2 and $9.1 billion in Q3 of 2015.

This is based on the historical pattern of late reporting, which is most pronounced at the earliest stages. Overall, 30 percent of seed dollars are reported after the quarter closes, 13 percent for series A and 7 percent for series B. The percent shifts are lower for later series.  

The quarterly projected funding totals are much more bullish for early stage than a count based solely on rounds reported to date. Instead of a sharply declining market, factoring in projections shows early stage investing counts dipping 7 percent at most, with seed counts flat year over year.

“We do see significant amounts of data added after the close of a quarter,” said Crunchbase CEO Jager McConnell. While there is some margin of error for projected numbers, it is estimated at below 5%, not enough to change the general thesis that early stage is not experiencing the large, across-the-board declines seen at later stages.

Overall, third quarter private technology company investment was characterized by stable early stage funding levels and a sharp contraction in late stage deal-making.  

At the late stage, data showed a clear retreat from the large, unicorn rounds prevalent in 2015. In the just-ended quarter, investors put $6.43 billion to work in Series C and later rounds —  down drastically from $12.15 billion in Q2 and $12.2 billion in Q3 of 2015. The number of companies raising late stage rounds also dropped sharply with just 161 expected, compared to 201 in Q2 and 239 in Q3 of 2015.

The total reported to date is $14 billion invested across 1,769 seed, venture and corporate rounds for Q3 2016 for U.S.-headquartered companies (You can view the fundings here) The projected Q3 total, meanwhile, is around $15.6 billion.

Crunchbase is not the only one reporting Q3 funding results. Reports from Mattermark, Pitchbook, and CB Insights have also come out recently. While it’s difficult to compare the reports without having access to the underlying data, topline numbers are given for comparison.