Venture Funding Slows as VC Industry Contracts, & Top 10 Deals List

4/19/13Follow @bvbigelow

Overall venture capital activity slowed in the U.S. during the first three months of 2013, with venture capitalists investing $5.9 billion in 863 deals nationwide, according to the MoneyTree Report released today.

Compared with the previous quarter, VC funding was off nearly 12 percent and the deal count was down almost 15 percent. Venture firms invested $6.7 billion in 1,013 deals in the fourth quarter of 2012, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters.

The amount of capital deployed during the first quarter also was down over 6 percent from the same quarter last year, when nearly $6.3 billion was invested in 868 deals, according to MoneyTree data.

John Taylor, who heads research for the NVCA, told me by phone there is nothing unexpected about the lower investment levels because the venture industry has been consolidating, with a smaller number of firms raising less capital. VC fund-raising over the past decade peaked in 2006, when NVCA data shows that 236 VC firms raised almost $31.2 billion from college endowments, pension funds, and other institutional funds. In 2012, 189 firms raised more than $19.4 billion.

Taylor said a couple of other factors also are contributing to the slowdown: VC firms are providing less funding in capital-intensive sectors like cleantech and life sciences, especially in first-time deals; and VCs are investing smaller amounts in more Internet and software deals.

“One place where we did see an increase was in companies that are in later-stage rounds,” Taylor said. To him, it’s an indication that more venture-backed companies are planning IPOs. “Our hope is that as companies come off their 2012 audits that they are starting to put their S-1 [IPO] filings together to go public,” Taylor said. “We expect to see a large number of companies go public this year.”

Under securities reforms adopted just over a year ago, companies also can now submit their IPO filings confidentially for regulatory review. About 175 IPO filings have been submitted 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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