New Reality for U.S. Venture Capital: Data Shows Startup Deals Are Smaller, More Numerous and More Capital-Efficient

10/15/10Follow @bvbigelow

The MoneyTree Report on third-quarter venture funding echoes results that we reported earlier this week, showing $4.8 billion was invested in 780 venture deals nationwide.

That was a 7 percent decline in venture capital invested—but a nearly 9 percent increase in the number of deals—compared with the same quarter in 2009, when almost $5.2 billion was invested in 716 deals, according to the MoneyTree Report, which is prepared each quarter by PricewaterhouseCoopers and the National Venture Capital Association, using data from Thomson Reuters.

The MoneyTree numbers vary from the figures we reported Wednesday from CB Insights, the New York information services firm that found $5.4 billion went in 715 venture deals nationwide during the recent quarter. The numbers don’t match because the surveys use different methodologies. But what’s noteworthy is that both reports show similar trends—an increasing number of smaller venture deals, and a surge in venture funding for early stage deals.

Michael Greeley of Boston’s Flybridge Capital Partners says that’s good news for startups, and he offered some insightful observations during a conference call with reporters yesterday.

“The amount of first-time financings is a great barometer for the health of the industry,” Greeley said. “That really is probably the most risky investment that venture capitalists are asked to make. To see that over a quarter of those dollars went into those types of companies, I think was quite, quite encouraging. We also shouldn’t lose sight of the fact that July and August are historically pretty slow months.”

Of the 780 deals funded during the third quarter, the MoneyTree Report says 271 (35 percent) were early stage financings—including 87 (11 percent) first-time investments, which are often described as seed-stage deals. Of the $4.8 billion total invested, almost $1.3 billion (about 26 percent) was invested in such early stage deals, according to the MoneyTree Report.

Greeley also offered … 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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