Venture Dollars Up for Quarter, Down for Year

The optimist points to increased venture capital deals and dollar amounts in the second quarter of 2012 compared to the first three months of the year. The pessimist notes that both the second-quarter and first-half numbers for 2012 are lower than those figures in 2011.

The brief recap: January through June 2012 saw 1,707 deals worth $13.1 billion; for the same time period in 2011, it was 1,942 deals with a value of $14.7 billion.

Further numbers and analysis from one of the longest names/reports on record: The MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.

The number of Early stage deals reached the highest quarterly total since Q1 2001, with $2.1 billion going into 410 deals, an 18 percent increase in dollars and a 28 percent increase in deals from the prior quarter. The Internet-specific sector also saw increases during the second quarter, rising 22 percent in dollars and 31 percent in deals from the prior quarter to $1.8 billion going into 261 deals in Q2.  The Life Sciences sector (Biotechnology and Medical Devices), however, experienced a decline in funding in the second quarter, dropping 9 percent in dollars and 6 percent in deals from the prior quarter to $1.4 billion going into 174 deals in Q2.

“The concentration of venture capital dollars in the hands of fewer firms will increasingly dictate the flow of investment,” said Mark Heesen, president of the NVCA. “Currently, this translates into more funding for IT start-ups and less capital available for life sciences and clean technology.  We hope to see this investment mix rebalance over time as the start-up ecosystem is better served with more diversity, not less.  Additionally, we continue to watch the early stage and first time financing numbers as they are critical to the U.S. innovation pipeline.  We are encouraged that these numbers were stronger this quarter and hope that this signals an ongoing commitment on behalf of venture firms to make these longer term, breakthrough investments.”

“If funding levels in the second half of the year remain consistent with the first half of the year, VC investing in 2012 will fall short of the nearly $30 billion invested in 2011 but will exceed the $23 billion invested in 2010,” remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US.  “Software and Internet companies continue to be attractive industries for VCs since most of these companies tend to be capital efficient and don’t require large amounts of capital to operate.  VCs also find the potential for profitable liquidity events to be attractive for these companies.  On the contrary, given the regulatory challenges currently impacting the Life Sciences industry and the amount of capital required to fund these companies, it’s no surprise that investments in this industry have declined for the fourth consecutive quarter.”

The Software industry received the highest level of funding for all industries with $2.3 billion invested during the second quarter of 2012, which is the highest investment total for the sector since the second quarter of 2001.  This level of investment represents a 38 percent increase in dollars, compared to $1.7 billion invested in the first quarter.  The Software industry also had the most deals completed in Q2 with 290 rounds, which represents a 16 percent increase from the 251 rounds completed in the first quarter of 2012.

Life Sciences investing declined for the fourth consecutive quarter, most notably in the Biotechnology sector where $697 million went into 90 deals, representing the lowest quarterly total for the industry since the first quarter of 2003. 

Seed stage investments rose 33 percent in dollars and 15 percent in deals with $199 million invested into 63 deals in the second quarter. Early stage investments also rose, climbing 18 percent in dollars and 28 percent in deals with $2.1 billion going into 410 deals, the largest quarterly deal total since the first quarter of 2001.  

First-time financing (companies receiving venture capital for the first time) dollars increased 24 percent to $1.1 billion in Q2, and the number of deals rose 27 percent to 282 deals in the second quarter.