Infrastructure & Enterprise Software investments make a slow start in Q1 2017 after a record 2016

Infrastructure & Enterprise Software funding declined 19.8% YoY in the first quarter.

Global Infrastructure & Enterprise Software investments took an upturn in both number of deals and total amount invested, in the opening quarter of 2017 compared to Q4 of last year. However, both figures remained around 20% below the levels set in Q1 2016 when companies in the sector raised $555.4m across 57 deals. Last year, the Infrastructure & Enterprise Software sector saw QoQ growth in both amount invested and number of deals, in the first three quarters of the year, before funding fell sharply by nearly two-thirds in the final three months. Q1 saw a recovery in investment interest with Palo Alto-based cybersecurity provider SentinelRound raising the biggest round in 2017 with its $70m Series C round led by Redpoint Ventures.

Infrastructure & Enterprise Software investment activity in Q1 hints 2017 may fall short of last year’s record deal tally

  • Despite volatile funding, the deal count for the 2014-2016 period showed small but consistent growth at a CAGR of 5.5%. However, if Infrastructure & Enterprise Software deal activity in the first quarter is maintained, the sector will fail to surpass the record deal tally of 229 transactions reached last year. Q2 looks to be reinforcing the trend, with the first half of the quarter yielding only 20 deals.
  • 2015’s total of over $2.5bn worth of funding for Infrastructure & Enterprise Software focused companies, was a record haul for the sector and a 73.6% increase on 2014’s total. The largest deal of the year went to San Francisco’s HR software company Zenefits, which raised a huge $500m Series C funding round co-led by TPG and Fidelity Investments in Q2 2015.
  • The average funding round size in 2015 was $11.6m, $4.1m higher than 2014’s average deal size of $7.5m. Despite the subdued activity in the first quarter of the year, the average deal size was $9.7m, which is 3.2% higher that the 2016′ average.

US-based companies dominate the list of top 10 most active Infrastructure & Enterprise Software investors

  • The most active investors in the Infrastructure & Enterprise Software space invested 85 times combined since the start of 2014 – this means that 12.3% of the overall funding rounds in the sector during the period had one or more of the ten most active investors as participant.
  • Every investor to make the list is California-based, bar two. The two exceptions are first-placed New York-based Y Combinator and Maryland-based VC firm New Enterprise Associates.
  • Four of the top ten; Right Side Capital Management, FundersClub, 500 Startups, and Y Combinator, are all predominantly accelerator-type early stage investors, whereas the remaining six are all venture capital firms specialising in larger, later stage investments.

Accounting companies received nearly a third of the total funding to the Infrastructure & Enterprise Software sector since 2014

  • Nearly 30% of deals since 2014 in Infrastructure & Enterprise Software have gone to companies that focus on producing Accounting software solutions. San Francisco-based Financial Force received the largest funding round in the segment raising $110m in March 2015. The round was led by TCV with added contribution from Saleforce Ventures.
  • The two largest deals in the sector to date: the Zenefits funding round mentioned earlier and AvidXchange’s $225m equity financing in 2015, were received by companies specialising in the two smallest sub sectors in terms of deal share – HR/Payroll and Invoicing software, respectively. AvidXchange also picked up another round as recently as June 2017. As reported by FinTech Global, the invoice processor received $100m of growth equity investment from Canadian pension scheme, Caisse de dépôt et placement du Québec.
  • Not a single sub sector has a dominant share of the funding in the sector, with the most frequently funded sector, Accounting, only 14.7 percentage points higher than the least funded sub sector, Invoicing.

North America’s share of Infrastructure & Enterprise Software funding fell sharply in 2016 before rallying in Q1 2017

  • North America’s funding share fell 38.6% between 2014 and 2016 going from 92.6% in 2014 down to 54% in 2016.
  • Europe and Asia both saw their share of funding (as well as aggregate funding) rise YoY in the same period. Europe’s share was a quarter of the overall amount in 2016, a huge increase from its meagre contribution of 1.9% in 2014. For Asia, the share of funding rose to a fifth of the overall amount in 2016, a 17.7 percentage point rise from 2014’s figure of 2.3%.
  • The funding share that went to regions outside the three main continents was $15.4m in Q1 2017 – equivalent to a 3.5% market share of funding. This share is over three times what the same regions managed in the whole of 2016.

The data for this research was taken from the FinTech Global database. More in-depth data and analytics on investments and companies in Infrastructure & Enterprise Software as well as across all FinTech sectors and regions around the world are available to subscribers of FinTech Global. ©2017 FinTech Global

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