Venture Deals Neared $7B in First Quarter, Up From 2012

4/11/13Follow @curtwoodward

We recently looked at which venture capitalists were raising money last quarter. Now we’ve got some insight into how they spent it.

Research firm CB Insights says it tracked $6.9 billion in VC investments nationwide in the first quarter of this year, spread across 841 deals. Those totals represented a steady pace compared with the previous quarter, and a rise from the numbers seen a year ago.

Overall, the new CB Insights report continues to reflect what we’ve seen for a while in the broader venture sector: investors moving into very early stage deals, which means more checks of smaller size.

That surge has led to warnings about a “Series A crunch,” the inevitable result when a surge of seed-stage startups can’t show good enough performance to raise their next round of investment.

There is some evidence in this report to reflect that prediction, with the number of seed deals up by 31 percent, while the number of Series A deals were down compared with a year earlier. But that also means investors aren’t yet pulling back from early stage investments because of fears those companies might hit the wall sooner.

“While the consensus is that there will be seed VC casualties because there is not enough Series A money, the prevailing wisdom among investors also appears to be that this crunch will only impact those other `less smart’ investors who made poor bets,” the report says.

As usual, the top three states for venture deals were California, New York, and Massachusetts.

New York actually overtook Massachusetts for the No. 2 spot in this quarter’s rankings, which happens occasionally. The larger point is that New York is maintaining its bid to become a longstanding second-tier tech region, something that will no doubt grind the gears of civic leaders in Boston.

There were some surprises further down in the state and local rankings, notably the fall of Washington state from the top tier of VC deals to a No. 10 ranking. Texas maintained its spot around the top five, while Georgia bumped up to No. 4 and Utah rose to No. 6.

It’s worth noting that movement in the rankings below No. 5 can be seriously affected by a few good-sized deals in one state during a quarter—that appears to be the case in both Georgia and Utah, as well as in Washington, DC, which is at No. 9 mostly from Living Social’s $110 million round on a shrinking valuation. Here’s the top 15:

The top sectors for venture investing were once again Internet, healthcare, and mobile. Internet companies got about 40 percent of the VC dollars, and 45 percent of the overall deals. Healthcare represented about 21 percent of the dollars invested, and 17 percent of the deals done. Mobile and telecom companies accounted for 10 percent of the dollar value and 13 percent of the deal volume in the quarter.

CB Insights also adds more detail to the general retraction seen in cleantech investing. Texas and Colorado companies were fairly well-represented in that sector, but overall, “investors cannot seem to flee the space quick enough,” CB Insights says.

“There was less than $500 million of total funding to cleantech” in the first quarter, the report notes. “In the past, a single cleantech deal might be greater than that.”

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

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