VC funding in the DMV region dropped 25% in Q3 compared to last quarter

The D.C. Metro area’s venture capital raises were lower than usual this past quarter.

Venture capital activity in the D.C. area — which includes cities spanning from Northern Virginia to Baltimore — for the third quarter of 2019 totaled $282 million into 33 deals, according to data shared in a recent PwC/CB Insights MoneyTree report.

This is a decrease of about 25% in dollars and 23% in deals compared to the second quarter of this year, which totaled $378 million invested in 43 deals. (Those Q2 figures have been updated by PwC since we reported on the quarter in July.)

It’s the District’s weakest quarter of the year for both dollars and deals.

Brad Phillips, a director in PwC’s Emerging Company Services practice, told Technical.ly that the old trend of variability from quarter to quarter and year to year is still prevalent in the region because the region doesn’t see an abundance of large deals.

Therefore, when we get a few large deals during a particular quarter and do not see similar deals the following quarter, the difference between the two quarters can be stark.

Looking back a year to Q3 of 2018, the region saw $498 million invested over 41 deals.

“The difference between Q3’19 and Q3’18 as well as the comparison of 2019 and 2018 through three quarters is the discrepancy in the number of large deals that we have seen,” Brad Phillips, a director in PwC’s Emerging Company Services practice, told Technical.ly. In Q3 of 2019, “we had three $20 million plus rounds go to companies in the region compared to eight such rounds in Q3’18. Through three quarters of the year, we have seen 11 $20 million plus deals in the metro area compared to 23 for the same period last year.”

Even though companies in the region that fall in the internet and healthcare sectors received the most VC dollars in the third quarter, as well as the first two quarters, such funding dropped 82% compared to Q2, according to Phillips, and funding for healthcare-focused companies declined 31% from Q2.

Phillips also said the DMV isn’t the only area experiencing this drop: There’s a national trend showing fewer but larger deals.

Nationally, the fintech and artificial intelligence sectors are getting the most attention, with $1.9 billion invested in fintech startups and $1.6 billion invested in AI companies in Q3.

As far as rankings, D.C. proper moved up to #25 in the U.S. for the number of deals and fell to #27 for the amount of dollars raised compared to other states. The District still falls far behind its neighbor, Virginia, which ranked #9 in deals and #14 in dollars overall.

Virginia, which has been getting a lot of love due to Amazon’s second headquarters moving in, didn’t do too badly in Q3.

“Typically Northern Virginia sees significantly more funding than D.C. proper and Q3’19 was no exception,” Phillips said. “Thirty-seven million dollars was invested in six D.C. companies during the quarter whereas $218 million was invested in 24 deals in Virginia.”

When comparing 2019 to 2018, Phillips said we have to keep in mind that 2018 was the DMV region’s fourth best year on record, with Q4 consistently showing a higher number of investments in the last four years: In 2018, 32% of funding for the year came in Q4.

“There is some history that suggests that the region can rebound in Q4, but through three quarters we’ve dug ourselves a hole that will be difficult to come out if we hope to meet or exceed funding from last year,” Phillips said.

Some of the areas top tech deals in Q3 include Hawkey 360’s $70 million Series B round and a $7 million Series A raise by Potomac, Maryland-based real estate tech company Curbio.