VC Keeps up Hot Pace, 2011 Could Mark 10-Year Peak, CB Insights Says

10/13/11Follow @curtwoodward

Market meltdowns, international turmoil, stubborn unemployment—none of the lingering macro-economic troubles seem to be holding back the momentum for venture investing in 2011, according to a report on third-quarter investments from research firm CB Insights.

The latest tally from the firm’s venture capital database shows venture investments reaching $7.9 billion in the quarter across 790 individual deals, setting a pace to possibly register the biggest year for VC in a decade.

That holds true even with a pretty major correction: CB Insights’ researchers didn’t count half of Twitter’s enormous $800 million financing round, reasoning that a reported half of the money went to cashing out stockholders.

Of course, the pace might not hold up in the last quarter of the year, particularly since VCs are reporting some difficulty raising funds from limited partners. But if the current momentum holds, “we are looking at a $30 billion+ year for VCs,” the report says.

Check out the full report for even more numbers. Two more methodological notes: CB Insights only counts investment rounds where a VC participated, so any rounds made up solely by mutual funds, hedge funds, or other non-venture investors also aren’t added to the tally. And state-level activity is determined by the headquarters of companies getting investments, not the home base of the VC firms involved.

BIGGER APPLE
California companies continue to lead the way in venture investments, accounting for about half (48 percent) of the national third-quarter VC dollars in CB Insights’ report.

The notable change is the rise of investments in New York companies, which accounted for 10 percent of venture dollars—doubling their position from a year earlier and virtually tying with Massachusetts, which had 9 percent of the total in the third quarter.

Taking the head-to-head a little further, CB Insights says New York pulled ahead of Massachusetts in both the number of deals and dollars invested “for the first time ever,” with New York registering $831 million on 86 deals for the quarter, compared with Massachusetts’ $710 million on 83 deals.

Washington state companies, meanwhile, maintained their small share of VC financing overall with just 2 percent of the national take—half of Texas’ 4 percent share.

UPS AND DOWNS
Healthcare-related VC investments continued to contract, showing year-over-year declines in both dollars invested and the number of deals, with $1.67 billion spread over 143 deals. CB Insights noted uncertainty around exit opportunities and the regulatory landscape for this sector—public policy for healthcare in particular will continue to look uncertain until the 2012 national elections are decided.

The number of individual mobile investments hit a high point at 13 percent of the total deals tracked, up from 7 percent a year earlier—although in terms of dollars, the share of mobile investments was only two percentage points higher than the third quarter of 2010.

Cleantech saw notable improvement, with funding levels topping $1.2 billion nationally—up from $790 million a year ago and $781 million in the second quarter of 2011.

PLANTING SEEDS
CB Insights’ report also sees an ongoing increase in the number of seed-stage deals by VCs over the past year, rising from 11 percent of all deals in the third quarter of 2010 to 15 percent of deals in this year’s third quarter. “While primarily a tech VC tool, healthcare investors increasingly used seed VC investments in Q3 2011 as well,” CB Insights noted.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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