December Surge of Internet Deals Carries Venture Capital to Two-Year High

1/13/11Follow @bvbigelow

A wave of Internet deals helped venture funding during the fourth quarter of 2010 reach a two-year high-water mark in both the number of deals and capital invested, according to CB Insights, a New York information and data services company tracking the innovation economy.

Venture capital firms poured a total of more than $6.5 billion into 735 deals during the last three months of 2010, according to CB Insights’ Q4 2010 Venture Capital Activity Report. That represents an 18 percent increase in capital invested and a 6.9 percent rise in number of deals, compared with the $5.5 billion and 687 deals counted during the fourth quarter of 2009.

Annual venture funding in 2010 amounted to $23.7 billion invested in 2,792 deals, a 14 percent gain in funding and 13 percent increase in deals over 2009, when CB Insights found a total of $20.8 billion invested in 2,461 deals for the year.

Capital invested during the fourth quarter was boosted, though, by four mega Internet deals that closed in December. The four deals together accounted for $965 million of the $1 billion gain over the $5.5 billion that was invested during same quarter in 2009.

CB Insights included $500 million of the $950 million Groupon deal in the fourth quarter of 2010 (the Groupon deal was announced in December but closed in January), according to CB Insights co-founder Anand Sanwal. Other December deals that helped buoy the numbers were Kleiner Perkins’ $200 million investment in Twitter, Amazon’s $175 million funding for LivingSocial, and a $90 million venture investment in Whale Shark Media, which was largely used to acquire Australia’s RetailMeNot.

With four deals accounting for such a big share of the capital invested, it’s difficult to extract meaningful trends from the investment increase seen in the quarterly data. But as my Xconomy colleague Wade Roush says, it’s unwise to write off mega deals like Groupon and Twitter altogether. They’re still a sign that VCs are willing to invest heavily in some venture-backed companies.

“There is more optimism than we’ve observed in … 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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