Small is Beautiful in Q1 Venture Deals as VCs Write Lots of Checks

4/18/12Follow @bvbigelow

Venture investors wrote lots of checks during the first three months of 2012, but the amounts were small, according to the venture capital activity report being released today by CB Insights, the New York data services firm.

The firm counted 785 venture deals during the quarter that ended March 31, marking the second-highest deal count in over two years. Despite all the activity, however, the $5.9 billion that VCs invested amounted to a 21 percent decline from the $7.5 billion counted in the same quarter of 2011 and a 22 percent decline from the $7.6 billion invested during the previous quarter.

Although the $5.9 billion total marked the lowest level of VC funding since the second quarter of 2010, the analysts at CB Insights say they don’t think it is symptomatic of a burst bubble because deal activity remained strong. Rather, CB Insights attributes the dip to fewer “VC mega deals” in the quarter. At the end of 2010, for example, venture capital firms invested $950 million in Groupon, and $200 million in Twitter.

In line with the high number of deals, CB Insights notes that almost one of every five VC deals (19 percent) was a seed stage investment. By investing a minimal amount in seed stage companies, CB Insights says venture firms “get first access to invest in these companies should they show signs of going from seed to something more substantial. On the flipside, if the seed investment doesn’t work out, the firm has put little capital at risk.” About 29 percent of the deals were Series A venture rounds and 21 percent were Series B.

Venture investments in Internet-related companies represented the … 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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