Venture capital funding soars in Bay Area

SAN JOSE — Venture capital spending surged in the Bay Area during the third quarter of this year, a report released Friday showed, but the robust upswing has raised the specter of a tech bubble among some. During the third quarter, venture capitalists invested $7.9 billion in companies based in the Bay Area, which was 70.1 percent above the year-ago third quarter, according to the MoneyTree Report released by PricewaterhouseCoopers and the National Venture Capital Association. For the first nine months of 2015, venture funding in the Bay Area totaled $22.95 billion, which was 25.7 percent above the $18.26 billion

invested in the Bay Area during the first nine months of 2014, according to this newspaper’s analysis of the MoneyTree Report, which was compiled from data prepared by Thomson Reuters.

“Venture capital funding is still very strong,” said Tim Bajarin, principal analyst with Campbell-based Creative Strategies, which tracks the tech sector. “But the focus of the investing is on things that are more practical and business oriented, rather than on the consumer side.”

By far, the biggest industry category in Silicon Valley to receive venture funding during the first nine months of 2015 was the software sector, which harvested $10.6 billion during the period, up 9.5 percent from the same nine months in 2014.

No. 2 was consumer products and services, totaling $2.37 billion and up 85.7 percent from the year before and No. 3 was biotechnology, which totaled $1.96 billion and was up 54.4 percent.

The fourth-largest industry group was media and entertainment, totaling $1.77 billion, but down 1.1 percent from the year before, and fifth was financial services, totaling $1.64 billion, up 476 percent from the year before.

During the third quarter, the 10 largest Bay Area venture deals went to: Social Finance of San Francisco, which raised $1 billion; Palantir Technologies of Palo Alto, $450 million; GitHub of San Francisco, $251 million; Stem CentRx of South San Francisco, $250 million; Medallia of Palo Alto, $150.3 million; Auris Surgical Robotics of San Carlos, $149.5 million; Twilio of San Francisco, $130 million; Tanium of Emeryville, $127.6 million; Thumbtack of San Francisco, $125 million; Tintri of Mountain View, $124.6 million.

“More than half of all investment deals (in the United States) now are going to seed or early stage companies,” said Bobby Franklin, president of the National Venture Capital Association. “It’s a great time to be an entrepreneur in America.”

Still, the boom in venture funding has raised, in some quarters, the specter of a tech bubble along the lines of the disastrous dot-com meltdown.

“Just like with the dotcom era, there will be a significant contingent of entrepreneurs and investors who are chasing dreams and are being greedy,” said Michael Tchong, founder of Social Revolution, which tracks technology trends.

Yet things are different this time compared with the dot-com bubble, according to some analysts, including Tchong and Bajarin.

“There is a huge demand for mobile, for better user interfaces, for a better human and machine interface,” Tchong said.

And much of that demand remains untapped, especially outside of the United States and Europe.

“This is not a tech bubble,” Bajarin said. “We are going through a major journey to move everybody from analog to digital and at the moment, most of the world, especially in emerging markets, is still analog.”