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US tech start-ups see steady rebound from three-year low

LiveMint logoLiveMint 12-07-2017 Isabel Gottlieb

After hitting a three year-low in March, business conditions for US start-ups are steadily improving.

The Bloomberg US Startups Barometer, a weekly gauge that tracks the funding flowing into private technology companies as well as the exits that make their investors money, increased 16% from a year earlier.

Here’s a breakdown of what’s boosted and held back the index:

Number of fund-raising deals: Up 5.6%

Start-ups have secured 5.6% more fund-raising deals from investors compared with a year earlier.

Dollars raised: Down 20%

Despite that increase in the number of deals, the total dollars raised by startups is substantially down from a year earlier. That may prove to be more of a short-term blip than a sustained decline: A few outsized deals last summer, including the $3.5 billion that Uber secured from Saudi Arabia in June 2016, caused this sub-index to spike.

“What you saw in 2014, 2015 was nuts. Today is still high,” said Nizar Tarhuni, an analyst at research firm PitchBook. “We think the venture community is solid.”

Initial rounds: Up 27%

Our start-ups index places a special focus on the number of start-ups that raised money for the first time, because it reflects investors’ appetite to place bets on the riskiest businesses. The 27% year-over-year growth in first financings has helped buoy the index.

“It’s very inexpensive to start a company these days,” said Jeff Grabow, Ernst and Young’s US venture capital leader. “There’s a lot of opportunity for VCs to choose from.”

Exits: Down 23%

The most worrying trend is a continued decline in exits, which follows the number of companies that were either acquired or went public. That figure is down 23% compared with the same period last year, despite some recent high-profile IPOs including Blue Apron Holdings Inc.

This means investors’ capital is getting tied up in later-stage startups instead of getting recycled back into younger businesses, according to Ernst and Young’s Grabow.

“It plugs up the economy and gets things out of balance,” Grabow said. “We need to see some things where there’s more M&A going, more IPOs to help clear out the system.” Bloomberg

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