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PE & VC News

The 2015 year is now a month behind us.  How did venture capital do in 2015?  Here’s a look.

Total Capital Invested

The first look is venture capital invested and number of rounds closed by year.

Interestingly, on a total volume basis, 2015 was a banner year for total capital invested.  Total capital invested reached $77.3 billion, well above 2014′s already high $68 billion.

On number of rounds closed, the number of rounds surprisingly declined by a fairly hefty amount, going from 9,381 to 8,097.  The drop in the number of deals was more reminiscent of the dot-com crash than simply a mid-cycle slowdown in funding of smaller companies.

Capital Invested Source: Pitchbook

A Breakdown by Quarter and Round

What’s was behind the decline in the number of rounds closed an rise in valuations? Perhaps completely unsurprising, the number of rounds dropped by the most amount for very early stage, angel rounds.

The decline in early stage, angel round investing started a precipitous drop in the second half of 2015, dropping from 2,256 in the second quarter to 1,923 in the third quarter.  The decline continued into the fourth quarter, declining from the 1,923 to 1,675.

Of course, the drop wasn’t solely the sphere of angel rounds.  Early stage venture capital rounds also dropped, although the early stage drop was more gradual and started much earlier.  The early stage decline began in the second half of 2014, and continuously dropped from 836 in the second quarter of 2014 to 536 in the final quarter of 2015.

Interestingly, the number of rounds also dropped for later stage venture capital investments, although the drop in the number of later stage venture capital rounds was quite marginal.

by round Source: Pitchbook

The Industries

With the broad macro view established, what industries are behind the figures?  An industry detailed look follows.

Unsurprisingly, Commercial Services far outpaced all other sectors, largely because Commercial Services captures such a broad swath of activity.  In 2015, the number of Commercial Services deals dropped to 2,940 from 2014′s 3,646.

In a distant second was Energy at 1,889, a slight increase from the 1,859 in 2014.  Given the weakness in oil prices and other natural resources, the continued strength in Energy is somewhat surprising.  Then again, the Energy sector includes alternative energy, a sector yet to be deterred by cheap oil.

On the other end of the deal spectrum, the smallest 3 sectors including Pharma & Biotech (150 in 2015), IT Hardware (251 in 2015), and Software (320 in 2015).

vc by sector Source: Pitchbook

The Dollars Behind the Sector Look

Lastly, here’s a look at the dollars behind the sector level deals. A generally similar view to the number of deals look materializes.

On top is Commercial Services at just over $31 billion, followed by Energy at $13 billion, Consumer Goods & Recreation at $9 billion, and Media at $8 billion. On the other end, smaller dollar volume sectors included Pharma & Biotech at about $1.5 billion, IT Hardware at $2.4 billion, and Software and Healthcare each at about $3 billion.

dollar deals Source: Pitchbook

Conclusion

2015 was an amazing year for venture capital.  According to Pitchbook, venture capital managers invested $77.3 billion in companies, well above 2014′s incredibly high $68 billion.

On a sector look, Commercial Services dominated the deal flow, as has been the case for some time. Overall, comparatively speaking, the venture capital industry is doing quite well.

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Two interesting movements occurred in the most recent Bureau of Labor Statistics’ release of employee compensation in the finance and insurance industries. First is the percentage of total compensation devoted towards wages and salaries and second, average compensation per hour. Which direction would you guess the two are heading?  Are wages and salaries eating up a larger take of the pie?  What about average compensation, do you think it’s going up or down?

Here’s a look.

Salary and Wages as a Percentage of Total Compensation

First, a look at the salary and wage data as a percentage of total compensation.

Interestingly, the series has a long-term downward bias trend.  In early 2004, the percentage of total compensation devoted to salary and wages was 69.4%.

That figure precipitously declined to 64.7% in the second quarter of 2015.  Then, it jumped.  Salary and wage compensation as a percentage of total compensation increased to an amazing 66.6%.

This jump represents the first increase in a while.

What’s behind the jump?

Well, you can guess what you want.  On possible explanation is that firms finally started increasing base salary after years of stagnant wage growth.  In other words, bonus checks will show to have been relatively smaller in 2015 because of base salary growth.  Another possible explanation is that the denominator started decreasing, i.e. benefits and other non-salary compensation declined.

In any event, an interesting move.

percentage of total compensation - salaries and wages

Average Compensation

The next graphic is average compensation.

Fascinatingly, average compensation dropped off, something that hasn’t happened in a while.

Why did average compensation drop off?  Perhaps financial firms are starting to hire younger workers to replace older workers?  Or, perhaps it’s simply an anomaly?

It’s interesting to note how quickly average compensation rose from 2010 to 2015, yet a very different story is exhibited from 2005 to 2010.  Perhaps the run-up is over and the remainder of the economic boom will be akin to the early part of the decade.

cost comp per hour

How Do the BLS Figures Compare to Job Search Digest’s Survey Results?

The BLS’ figures are estimates based upon company filings and provide only an average, or total view for companies in the financial and insurance industries.  Job Search Digest’s data are based upon a survey of private equity and venture capital company representatives and provide lots of interesting detail as it relates to this sector. Here’s a breakdown look at pay by the amount of take-home pay.

Unsurprisingly, bonus pay explodes the higher up the pay scale one goes.  In 2015, individuals making $1 million or more of income earned more than half of their income from bonuses, with an average bonus of $600,000 on top of $500,000 in base pay.

As one moves further  down the pay scale, bonus pay become quite scarce.  At the lowest end – individuals making less than $100,000 per year – bonus pay barely registers.

So, how do the BLS figures align with JSD’s figures?

Well, it appear both figures are pointing to a phenomenon where bonus pay is increasingly concentrated at the top, with base pay becoming an increasingly more important part of the compensation pie for those who earn at the lower end of the spectrum.  Interesting.

Capture

Conclusion

In looking at the recently released figures on employee compensation in the finance and insurance sectors, two interesting “anomalies” shows up. First, the percentage of total compensation devoted to wages and salaries increased, from 64.7% in the second quarter of 2015 to 66.6% in the third quarter of 2015. Second, average compensation per hour dropped in the third quarter of 2015.

What’s behind the moves is up for speculation.  Perhaps the long-awaited retiring of the expensive generation is leading to some cost savings for financial employers?  Perhaps some financial employers are opting to not provide health insurance, which would explain the increase in wage and salary costs as a percentage of the total?

Lots of other potential explanations exist; what’s interesting is that it’s happening.  We’ll see whether the third quarter turns out to be a blip, or a trend.

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This past week saw one of the most well-known economic indicators – Disposable Personal Income – come in about in line with expectations. With the year almost over, and another presidency about to hit the road, now seems like a good time to take a look at how Disposable Income has performed by presidency.

Before taking a look, which president would you guess saw the best performance in disposable income growth over their presidency?  Which president would you guess is the worst?

Here’s a look.

Personal Income

Before looking at Disposable Personal Income, which takes Personal Income and subtracts out taxes, here’s a look at the broader Personal Income picture by U.S. president.

The chart shows the percentage change in Personal Income throughout the given president’s administration.  The vertical axis is the percentage change on a cumulative basis.  The horizontal axis is the number of months into the presidency.  Each line represents a president.

Interestingly, the best president for Personal Income growth is Reagan.  During his time in office, Personal Income expanded by an astounding 78%.

In distant second and third places are Clinton and Carter, each at 59% (although Clinton served four more years than Carter).

On the other end of the spectrum, Obama is the worst president for Personal Income, with a mere 29% growth for the 7 years he’s been in office.

George W. Bush was marginally better, with Personal Income growth of 38% over his 8 years.  Bush had the unfortunate experience of being president when the housing market and the global financial crisis began.  Most of the effect of the most recent global recession shows up in his final years.

Personal Spending by U.S. President

Disposable Personal Income

Next, to the question at hand – Disposable Personal Income.  Disposable Personal Income takes total Personal Income and subtracts off taxes paid.

Before looking, would you guess that the distribution or line-up of the best and worst U.S. presidents according to Disposable Income changes much from total Personal Income.

Which presidents raised taxes the most?  Which presidents lowered taxes?

Interestingly, the race to the top gets much closer. Overall, Reagan still comes out on top, at 32.9%, followed closely by Clinton at 32.6%. In the Disposable Income view, Johnson gains ground, as does Bush II (W. Bush).  Both presidents cut the tax burden during their time in office.

On the other end, the weakest president is Obama.  Obama has both the broader Total Personal Income as incredibly weak under his watch and the fact that during his time in office he raised taxes by large amounts.  The tax increases explain why Bush II looks much better than Obama.

Disposable Personal Income by U.S. President
Conclusion

Overall, in looking at Disposable Personal Income by U.S. president, some interesting results emerge. When it comes to Disposable Personal Income, the best performing U.S. presidents are Ronald Reagan and Bill Clinton. On the other end, the worst president for Disposable Personal Income is Obama, with DPI up just 13% through his 7 years in office.

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Playing Politics with the Federal Funds Rate

December 14, 2015

If things go as expected, on Wednesday Federal Reserve Chairwoman Janet Yellen will announce the first Fed rate hike in almost a decade (2006 was the last time the Fed increased the federal funds target rate). Since 2006, we’ve seen a peak in the housing market, a collapse in global financial assets, unemployment above 8%, […]

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What Is Going on with the American Consumer?

December 1, 2015

Every private equity professional – whether they want to admit it or not – is somewhat of an economist.  Private equity professionals must, by their very nature, follow demographic shifts, economic outlooks, and other economic forces. The force discussed here is the American consumer, typically considered the driving force of the American economy.  This presumption […]

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Could 2015 Mergers and Acquisitions Reach an All Time High?

November 16, 2015

Pitchbook recently released their accounting of mergers and acquisitions performance. Unless the fourth quarter of 2015 falls off the planet, 2015 is set to reach an all-time high in value terms.  Overall, if deal value climbs only by the amount it did in the first quarter of 2014, deal value in 2015 will reach about […]

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The 20 Top Cities for Global Finance

October 26, 2015

If you’re an observer of global finance, you know the financial world is becoming ever more competitive.  Among the many competitive forces is geography.  Finance firms move and shift employment for a number of reasons, including incentives, competitive wages, startup culture, and lots of other factors. With this as the background, which are the 20 top […]

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California Job Creation: Is the PE/VC Connection with Silicon Valley Responsible?

October 5, 2015

On usually the first Friday of every month, the Bureau of Labor Statistics (BLS) releases its estimate of net job creation (or destruction) for the nation as a whole.  The figures in the report are perhaps the most influential economic indicators in the world, including estimates on wage growth, unemployment, labor force, and industry job […]

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The U.S. Isn’t Number 1 in Venture Captial Investments

September 21, 2015

When you think of venture capital/private equity investing, what’s the first place that comes to mind? If you’re like most, you probably think of Silicon Valley’s tech companies or biotechnology in Massachusetts, as places with a strong venture capital base. You’d be right.  On an absolute dollar basis, venture capital in the United States is still the […]

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3 Reasons the Fed Might Raise Rates in September

September 7, 2015

Unless you’ve actively tried to avoid the conversation, if you work in the financial world, the topic of the  Fed raising rates in September is unavoidable. Everyone has an opinion, which range from relief that the Fed is actually doing something besides providing the spike to the party’s punch, to disgust that the Fed would consider a […]

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