MoneyTree Report Sees Third-Quarter Slowdown in U.S. Venture Investments

10/19/11Follow @bvbigelow

Venture capital firms invested $6.95 billion in 876 deals throughout the United States during the three months that ended Sept. 30, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association.

The numbers marked a slowdown from the preceding quarter, when venture capitalists put $7.9 billion in 1,015 deals.

But look at what’s happened since June: Fresh worries about Europe’s debt crisis, U.S. market volatility, and waning economic confidence all followed a protracted political stalemate over raising the federal debt ceiling and adopting a new federal budget. Are we better off than we were six months ago?

Still, VC activity during the third quarter was significantly better than a year ago. The MoneyTree Report, based on data from Thomson Reuters, shows that the $6.95 billion VCs invested during the third quarter of 2011 was nearly a third more (31 percent) than the $5.3 billion invested during the same quarter last year. The 876 deals also was higher, albeit only slightly, than the 850 deals counted during the third quarter of 2010.

The slowdown charted in the MoneyTree Report contrasts with the VC report released last week by CB Insights, which shows continuing momentum, with VC activity strengthening this year from $7.5 billion invested in 738 deals during the first quarter through the $7.9 billion invested in 790 deals during the third quarter.

The MoneyTree Report also highlighted a fairly dramatic shift in VC activity, with funding flooding into the software and Internet sector and pulling back in the life sciences and cleantech sectors.

Venture investments in 263 software and IT-related deals totaled $2 billion during the third quarter—the biggest slug of money to go into IT since the fourth quarter of 2001, according to the MoneyTree Report.

Meanwhile, venture funding for biotech startups fell. The $1.1 billion invested in 96 biotech deals nationwide during the third quarter represented an 18 percent drop in dollars and a 20 percent decline in deals from the preceding quarter, according to Tracy Lefteroff, a global managing partner of PricewaterhouseCoopers’ U.S. venture capital practice. Funding for medical devices and equipment showed a similar decline. The $728 million that was invested in 74 deals during the quarter marked an 18 percent decline in capital and a 21 percent fall in deals compared with the preceding quarter.

“For life sciences investors, 2011 started with quite a bit of optimism, with six IPOs in Q1 and a nice bump in Q2 investment,” said Nina Kjellson, a general partner in the Menlo Park, CA office of InterWest Partners. “But we’re now returning to … 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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