Venture Trend Toward Smaller-Size Deals Continues as Survey Shows Big Q3 Funding Surge in Texas, Drop in Massachusetts

10/13/10Follow @bvbigelow

Our friends at CB Insights made an early break out of the gate again today with data on venture capital investments in private companies, this time reporting total VC funding of $5.4 billion in 715 deals nationwide for the third quarter that ended Sept. 30.

The CB Insights Venture Capital Activity Report shows, though, that venture investing continues to seesaw, with mixed results in many sectors. The New York information services company notes that the $5.4 billion total for the quarter is the lowest U.S. funding level since mid-2009. On the other hand, the CB report says the 715 deals is the second-highest tally over the past two years—July was particularly strong with 298 deals—and “would suggest optimism given the quarter’s dealflow strength.”

CBinsightsVCQ32010

CB Insights also charted a re-emergence of seed-stage deals, from 1 percent of the deals in the third quarter of 2009 to 11 percent of total deals across a variety of sectors in the same quarter this year. CB says that also indicates “a healthy early-stage investment environment.” In short, CB’s numbers show that VCs throughout the country are funding a larger number of smaller deals.

Healthcare was the single largest sector for dollars invested, as usual, with more than $1.75 billion invested in 184 deals nationwide during the three months that ended September 30. Yet it declined from the same quarter of 2009, when venture firms put more than $1.9 billion into 192 healthcare companies.

California, Massachusetts, and Pennsylvania accounted for 53 percent of all U.S. healthcare deals, while most of the capital flowed to companies in California, Massachusetts, and (a tie) Washington and Texas. Massachusetts accounted for just 13 percent of the $1.75 billion invested nationwide (almost $228 million) during the quarter. That was down significantly from the prior quarter, when Massachusetts accounted for 23 percent of the total venture investments in healthcare nationwide (almost $377 million).

CB Insights also counted 233 Internet deals, which is usually the other major investment sector. The tally represented the largest number of deals in any sector during the quarter, but the total of venture capital invested in Internet companies was just over $1.25 billion. That was down nearly from the prior quarter. Still, it was an increase in both deals and dollars invested in comparison with the same quarter last year, when venture investors put over $1 billion into 194 Internet startups. About 71 percent of the deals and 70 percent of the capital went to Internet companies in just three states: California, New York, and Massachusetts.

Venture funding in cleantech amounted to $790 million that went into 61 deals nationwide during the third quarter, a 13 percent decline from the $913 million invested in 55 deals during the third quarter of 2009.

Texas had 15 percent of the U.S. cleantech deals during the quarter, which was more than Massachusetts, Colorado, and Oregon combined—and got more than twice as much venture capital. Overall venture funding jumped 68 percent in Texas—an incredible gain. Roughly $357 million was invested in 33 companies in Texas during the quarter. In the same quarter last year, VCs invested $232 million in 30 startups in Texas.

CB Insights also broke out data for certain states:

In California, CB Insights reports that venture firms invested slightly more than $2.6 billion in 271 companies. While the Golden State continues to dominate in terms of overall venture capital investments, funding during the quarter was 25 percent lower than the $3.4 billion that was invested in California during the same quarter in 2009.

CB VCQ32010 California

In Massachusetts, CB Insights said $466 million was invested in 87 deals during the quarter. While the deal count remained relatively steady compared to recent quarters, venture capital invested was down by a third compared to the $689 million invested during the prior quarter and nearly 22 percent below the $596 million invested in the same quarter last year. Healthcare deals accounted for 37 percent of Massachusetts’ deal volume and 49 percent of the venture dollars invested.

CB VCQ32010 Massachusetts

In Washington State, $222 million was invested in 34 startups during the quarter, a nice rise over the $211 million invested in 25 startups during the prior quarter—and a 54 percent increase in capital invested during the same quarter last year, when $144 million was funneled into 21 companies. Healthcare accounted for 56 percent of the venture capital invested—and 29 percent of the deals in Washington during the quarter, while Internet companies brought in 38 percent of the deals and 26 percent of the dollars.

CBinsightsVCQ32010

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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  • http://www.adwebix.com Ashley

    The increase in the number of smaller deals is also consistent with the current economic environment. Moreover, it counts that in the last couple of years many consumer Internet startups have become less capital intensive.

    Related, entrepreneurs and companies seeking funding may also want to go check http://www.adwebix.com – an online hub dedicated to helping early stage companies find financing.

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