Q3 Venture Deals Regain Some Lost Altitude, With $6B Invested Nationwide

10/13/09Follow @bvbigelow

The storm may not have entirely passed, but the venture capital industry unbattened the hatches during the three months that ended in September. At least that’s the sense I get from a 69-page report on U.S. venture investing, which we get from New York-based ChubbyBrain, an information services firm developing tools for investors, startups, and aspiring entrepreneurs.

In its “Pulse of the Innovation Economy” report, ChubbyBrain says just over $6 billion in venture capital funding was invested in 680 deals nationwide. That’s down almost 16 percent from the $7.2 billion that VC firms invested in privately held companies during the third quarter of 2008, but a 14 percent increase in deployed capital compared with the previous quarter of this year. It’s a sign that technology-based startups are gaining increased momentum from the winter of ‘09, especially considering the increased valuations in public markets that even includes some IPOs, such as the recent public offering of Watertown, MA-based A123Systems. The report notes that the momentum for venture investments picked up during the quarter, with September accounting for 40 percent of the deals nationwide.

California—and especially Northern California—remains in a class by itself for venture activity, according to the report. Just over half (51 percent) of the total number of deals went down in the Golden State (along with 56 percent of the total capital invested, or $3.4 billion). California was followed by Massachusetts, Texas, New York, and Georgia. The state of Washington ranked No. 7 on the ChubbyBrain list of top 10 states for venture activity.

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Two Xconomy cities also placed among the top 10 nationwide in terms of overall VC funding and deal activity. San Diego, which had 28 deals totaling $280 million, ranked third overall, behind San Francisco and New York. Cambridge, MA, was seventh, with 15 deals involving $193 million. Eight of the top 10 cities with the most third-quarter venture deals were in California.

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Cambridge, MA, saw more investments in venture-backed healthcare technologies than any other city, with nine deals totaling $169 million. San Diego ranked second, with $151 million invested in 15 deals. Seattle ranked seventh, with $62 million invested in five deals.

Elsewhere on Xconomy’s turf, the highlights include:

—Massachusetts: Venture investments in Massachusetts companies totaled $596 million, a 26 percent increase over the prior quarter that outpaced the national average. About one-third (34 percent) of the VC deals in Massachusetts were in the Internet sector, and 29 percent were in healthcare. On the other hand, healthcare got 52 percent of the capital. In Massachusetts: Cambridge had 15 deals totaling $193 million; Burlington saw 6 deals for $75 million; Waltham, MA, had 7 deals for $57 million; and Boston firms saw 9 deals totaling $38 million.

—Washington state: Washington experienced a sharp drop in quarter-over-quarter VC funding, to $144 million during the third quarter from nearly $275 million in the second quarter. And one deal—a $50 million investment in Calypso Medical—accounts for more than a third of Washington’s third-quarter total. Other big deals included $14 million for Apptio and $13 million for VoiceBox Technologies.

The nation’s three biggest sectors for venture investments (in order) were healthcare, the Internet, and telecom and mobile communications. Some other highlights:

—Healthcare: this sector showed the most third-quarter venture activity and garnered 32 percent of all VC investments nationwide. But in absolute terms, the $1.9 billion invested in healthcare was flat compared to the previous quarter this year. Most of the funds went to medical devices (39 percent) and drug development companies (28 percent), and VC investments in the sector were evenly distributed from early stage through late-stage companies.

—Internet: Early-stage investments in Internet startups accounted for 40 percent of the 194 deals nationwide in the quarter, and 21 percent of the $1.05 billion invested.

—Mobile & Telecom: Early-stage startups accounted for 28 percent of the 52 deals during the quarter. Investments in mobile software and services accounted for just over half of the deals but only 14 percent of the $802 million in VC dollars. Conversely, VC funding for towers and infrastructure represented just 2 percent of deals but 45 percent of the money invested.

—Green: California got 77 percent of just under $1 billion invested in “green” startups, which ChubbyBrain defines as covering everything from wind, solar, and other renewable energy technologies to industrial pollution and environmental controls to smart grid technology.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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