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Venture capital deal value surges in first quarter — report

Worldwide venture capital firms and other venture capital investors put $27.1 billion into 2,228 transactions in the first quarter, up 21% by value of transactions and 2% by number of deals from the fourth quarter of 2016, according to the MoneyTree Report, a quarterly report by PricewaterhouseCoopers and CB Insights.

However, transactions were relatively flat by value and down 3.5% by number from $27.4 billion in 2,310 deals in the first quarter of 2016.

U.S. venture capital-backed transactions accounted for 51% of total deals by value. U.S. venture capital firms invested 15% more capital to $13.9 billion in 2% more deals to 1,104 in the first quarter from the previous quarter, but transactions were down 11% by value from $15.7 billion and down 15% by number from 1,301 in the first quarter of 2016, the report noted.

Transaction values in the first quarter were boosted by an uptick in what PricewaterhouseCoopers calls megadeals — transactions of $100 million or more. For example, the number of mega fundraising rounds in U.S. venture capital-backed companies grew to 17 in the first quarter, from 12 in the fourth quarter of 2016.

“Companies are staying private longer and so there is more money being invested by the private sector,” said Tom Ciccolella, partner and U.S. venture capital leader of PricewaterhouseCoopers, in an interview.

Venture capital firms are no longer the only investors in these companies, Mr. Ciccolella noted. Other investors include corporations, in-house venture capital arms of corporations, growth capital-stage investors and other private equity firms, hedge funds and mutual funds, he said.

For example, corporations accounted for 26% of the deals in the first quarter, up from 23% in the fourth quarter and 23% in the first quarter of 2016, according to the report.

“Venture capital firms have typically done smaller deals,” he said. “The question I ask myself is, 'are we in the new normal? Will we have a bunch of deals over $1 billion?' That is a new phenomenon in the last three years.”

Another new phenomenon is that artificial intelligence looks to be the next new sector that venture capital executives are excited about, Mr. Ciccolella said.

Venture capital firms invested $820 million in 90 deals, the highest level by value in the past two years. Venture capital firms invested $510 million in 66 artificial intelligence companies in the second quarter of 2015. By comparison, venture capital executives invested $760 million in 86 transactions in the fourth quarter of 2016 and $784 million in 84 deals in the first quarter of 2016.

Artificial intelligence has the potential to have a disruptive impact on companies across sectors and industries, he said.

“It's definitely on the tip of everyone's tongue … but you never know whether (AI) will prove to be the same as clean technology that became sizable and then dropped off,” Mr. Ciccolella said.