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Military Entrepreneurs - VC investments in Atlanta drop 25% in Q2

Posted by Michael Horn on Fri, Aug 25, 2017 @ 07:15 AM

As we discuss in Session 6 of class, Entrepreneurship for Transitioning Warriors, venture capital investment is one of the many forms of raising money that a military veteran must understand. Funding your business can be a complex challenge for military veterans. There are various sources of funding available. The challenge is determining which source is the best for you. Here Urvaksh Karkaria at the Atlanta Business Chronicle describes the status of venture capital in Atlanta in 2Q17. You may not be in the Atlanta area, but the information my very well apply to your locale. 

Karkaria writes--Dollars invested by venture capital firms in Atlanta companies dropped nearly 25 percent in the second quarter.

Georgia companies drew $278.1 million in the quarter, compared with $364.4 million a year earlier, according to the MoneyTree Report published by PricewaterhouseCoopers LLP and CB Insights.

Deal volume in Georgia in the quarter was the highest since the fourth quarter of 2001. Nearly 30 deals were done in the second quarter, versus 17 a year earlier.

Tech companies in Georgia — and nationally — are showing a preference for staying private longer, said John Nee, partner in PwC’s Atlanta technology practice. That idea is supported by the large number of “Mega-deals” whereby companies are raising $100 million or more in expansion or later-stage rounds of financing, which previously may have been an initial public offering or secondary offering of a young public company.

Later-stage companies in Georgia drew the most investment ($119 million) in the second quarter, followed by expansion stage companies ($98 million).

Atlanta-based Fulcrum Equity Partners saw “robust volume” in Series A and Series B investment opportunities in the second quarter, as active angel and seed-backed companies mature.

“Meanwhile, more businesses continue the trend of becoming technology-enabled which opens the door for funding opportunities, as many companies will look to financial partners to meet the capital requirements for these initiative,” Fulcrum Partner Jeff Muir said.

Fulcrum has noticed an increase in health-care investment opportunities driven largely by the trends of providing better and more accessible care at a lower cost, and the shift from fee-based to value-based standards of care.

Valuation expectations remain high among Georgia tech companies.

“It is difficult to meet LP return expectations if a fund overpays at the entry,” Muir said. “Also, many entrepreneurs do not realize that excessive valuations in early rounds can negatively impact the ability to raise subsequent rounds of financing.”

M&A and private equity activity was robust in the second quarter, said Doug Spear, who leads the tech practice at Nelson Mullins Riley & Scarborough LLP’s Atlanta office.

Many software-as-a-service (SaaS) companies have grown annual recurring revenue to a point where they can exit at attractive multiples, largely because private equity firms are competing heavily for deals with plenty of available cash, Spear said.

“For venture deals, valuations will cool across the board, given the current unrest in our political environment and the subsequent down-rounds for many unicorn darlings,” he said.

Nationally, “mega” deals (investments of at least $100 million) accounted for 36 percent of total venture dollars raised in the second quarter, Nee said. The second quarter’s 31 “mega deals” was the highest total since the peak of 36 in third quarter, 2015.

Companies are able to raise capital from venture capital and other sources in lieu of going public, Nee said.

“These larger venture rounds let companies stay private and allow management to focus on longer-term growth objectives and not have the additional pressure of being a public company subject to 90-day financial reporting cycles,” he said.

Venture capital dollars invested nationally dipped to $18.36 billion in the second quarter, compared with $20 billion in the second quarter of 2016. Funding rose 28 percent from Q1 17, although deal volume slipped 4 percent.

Nine new VC-backed companies in the United States reached valuations of $1 billion or more in the second quarter, up from three in the prior quarter. That was the highest quarterly total since the frothy days of Q3, 2015.

“Q2 was a tale of two trends — U.S. deal activity continued its multi-quarter downward trend, but the growth rate of investments in dollar terms accelerated from the first quarter,” Tom Ciccolella, U.S. Venture Capital Leader at PwC noted in a statement.

The average reported venture deal amount in Georgia was $9.6 million in Q2, versus $21.4 million at the same time last year, according to PwC.

Topics: Veteran, Entrepreneurs, VC, investors, vetrepreneur