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 largest single sector during the quarter, according to CB Insights. Venture firms invested almost $2.07 billion in 326 Internet deals, which accounted for 35 percent of the VC dollars invested and 42 percent of the deals.

Without including the amounts invested, CB Insights says the top Internet deals were:

Yammer (San Francisco, CA)

Lithium Technologies (Emeryville, CA)

Code 42 Software (Minneapolis, MN)

Apptio (Bellevue, WA)

Kinnser Software (Austin, TX)

Trialpay (Mountain View, CA)

Healthcare was the next-biggest sector, with $1.45 billion invested in 153 deals. Those numbers were roughly comparable to the same quarter last year, but represent a 23 percent drop from the almost $1.9 billion invested during the previous quarter and an 11 percent slide in the 172 deals. CB Insights says, “The sentiment and chatter around healthcare continues to be mixed and so the sector will remain range-bound unless some catalyst, i.e. massive exit, regulatory change, etc. can spur it to move.”

The biggest healthcare deals were:

Warp Drive Bio (Cambridge, MA )

Sientra (Santa Barbara, CA)

Ariosa Diagnostics (San Jose, CA)

Apollo Endosurgery (Austin, TX)

Mevion Medical Systems (Littleton, MA)

Cleantech funding continues to sputter as the third-largest sector, with $763 million invested in 56 deals. The CB Insights data shows that it was a 40 percent drop from the $1.28 billion invested in green and cleantech deals during the previous quarter, and a nearly 19 percent decline from the 69 deals. Comparing the first quarter to the same quarter in 2011 shows even more of a freefall, though, with a 60 percent plunge from the $1.9 billion in venture funding and a nearly 35 drop from the 86 deals. “It’s the drop in deal activity that is probably most worth tracking,” CB Insights says.

The biggest green and cleantech deals were:

SolarCity (Foster City, CA)

Joule Unlimited (Bedford, MA)

LanzaTech (Roselle, IL)

MiaSole (Santa Clara, CA)

Renmatix (King of Prussia, PA)

For the first time, CB Insights broke out data for a new sector—mobile and telecom—showing that venture firms invested $435 million in 93 deals. In the previous quarter, VCs provided $756 million in funding to 92 companies. “Like most tech investment sectors, VCs are favoring small seed investments in the mobile sector,” CB Insights says.

Boku (San Francisco, CA)

Ruckus Wireless (Sunnyvale, CA)

Jasper Wireless (Sunnyvale, CA)

Ooma (Palo Alto, CA)

Verivo Software (Waltham, MA)

In the regional breakdown, Washington State was the outlier and staged something of a comeback, with $206 million invested in 28 companies. While that represents just 4 percent of all deals nationwide and just 5 percent of the capital VCs deployed during the quarter, it marked a 41 percent increase over the $146 million that VCs invested in the Evergreen state during the previous quarter. CB Insights notes that Washington was the only major VC recipient to register an increase in funding.

California retained its title as the Golden State for venture capital, with $2.86 billion invested in 309 companies during the first quarter. Funding dipped by 26 percent. While the number of deals remained comparable to previous quarters, the amount of capital invested was a 26 percent decline from the $3.8 billion invested in the previous quarter and a 27 percent decline in the $3.9 billion VCs invested in the year-ago quarter.

Massachusetts and New York continued their close competition for runner-up. VCs invested $650 million in Massachusetts companies, which accounted for 11 percent of all dollars invested, and placed Massachusetts ahead of New York, where VCs invested $333 million. But CB Insights counted 81 deals in New York and 76 in Massachusetts. The Bay State’s gap versus New York seems to worsen in tech, although CB Insights notes that Massachusetts has a more balanced portfolio of investments in healthcare and cleantech.

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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