Venture Investment Hits Highest Level Since Dot-Com Era

7/16/12Follow @curtwoodward

Venture capitalists invested some $8.1 billion in more than 800 deals in the second quarter, registering the highest such total in more than a decade, according to a new report from the analysts at CB Insights.

The totals represent a fairly modest uptick from the second quarter last year: A 5 percent rise in dollars, and a 4 percent increase in deal volume. But hitting a high-water mark is still notable, according to the report, because investors are dragged down a bit by the balky IPO market and global economic malaise.

Seed-stage investments also were at a high point, with more than 20 percent of all VC deals tracked in the quarter coming at that early stage. That uptick came at the expense of Series B and Series C deals, which you’d expect amid uncertain prospects for IPO exits.

Some of the other trends spotted by CB will sound familiar to anyone watching the big-picture storylines: New York and Massachusetts VCs continue to battle over the No. 2 spot in national rankings, with New York-based investors making more deals in the second quarter and Massachusetts VCs racking up a higher dollar figure.

Healthcare VC continues to be depressed, although rebounding slightly from the first quarter of this year. Meanwhile, Facebook’s $1 billion acquisition of mobile photo app Instagram appears to be driving money in the mobile sector, with CB Insights counting nearly 30 percent of the dollars in the mobile sector flowing to photo and video-related companies.

“For skeptics, it may also be indicative of a VC herd mentality,” the report says. “Time will tell.”

In the cleantech arena, CB Insights says a few mega-deals are masking some larger downward trends. While a handful of companies raked in big investments, the overall volume of cleantech deals “fell to a five-quarter low, having fallen 37 percent vs. last year,” the report said.

California is, of course, the regional leader. Golden State startups saw the number of deals grow by about 6 percent year-over-year, but the checks were bigger, with VC dollars committed in the second quarter up by 28 percent.

Washington state companies attracted more love from VCs in the quarter, but the total is inflated a bit by one large deal, the $100 million investment in Donuts, Inc. The startup raised the cash to buy new top-level Internet domain names (everything after the “dot”) in the newest international auction. It will make money by selling the names it wins to domain-name retailers. That makes the company more of a commodities play than a technology firm, even though it’s Internet-specific.

CB’s figures give a good overview of the national, regional, and sector markets for venture capital investments over time. The analysis firm does not include money raised from mutual or private equity funds or corporations, unless it’s the company’s venture arm. The full report will be available on CB Insights’ website tomorrow.

Here are a couple of graphics that show the national trend and the regional share of investment cash:

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

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