Flurry of Early Stage Internet Deals Highlight Q4 VC Activity; Investments Slip to $5.5B

1/12/10Follow @bvbigelow

Venture investing settled in a bit during the fourth quarter of 2009, but the analysts at ChubbyBrain, the New York firm providing the data, are encouraged by the overall mix, saying, “optimism, albeit of the cautious variety, seems to have found its way back.”

While the total amount of venture capital investments during the quarter declined to $5.5 billion nationwide, compared with $5.9 billion during the fourth quarter of 2008 (and $6.1 billion in Q3 2009), ChubbyBrain counted 687 Q4 deals nationwide, the highest number in five quarters. (That data tracks well with figures released last week by Dow Jones Venture Source.) Total VC activity for the year amounted to $20.8 billion invested in 2,461 companies, according to the company, an information services startup that tracks the entrepreneurial economy.

ChubbyBrain did not characterize the decline in total VC dollars invested during Q4 as a big concern. While the last three months of 2009 saw venture investments decline nearly 7 percent year-over-year and almost 10 percent from Q3, the fourth quarter still showed a steady, month-over-month increase in deal volume. ChubbyBrain notes that a handful of very large deals increased the Q3 totals significantly.

VC investments in green and cleantech startups also fell 38 percent in dollar terms in Q4 versus Q3; energy sector investments plunged by more than 50 percent. But the overall rise in Q4 deal activity reflects an increase in VC investments in early stage companies, especially in the Internet sector—where early stage investments accounted for 49 percent of the deal volume. As ChubbyBrain notes, this seems to put to rest concerns voiced earlier this year about VCs fleeing riskier early stage investments. Nearly 21 percent of the capital and 37 percent of the deals involved early stage companies during the quarter.

California Quarterly Trend

Among the top cities for VC deals and investments, ChubbyBrain ranks San Francisco No. 1, with 50 deals totaling $430 million during the fourth quarter, followed by … Next Page »

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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