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Venture Activity Report Charts Surge in Energy and Cleantech Investments, Smaller-Sized Deals

Xconomy National — 

Venture investments continued to improve during the first three months of 2010, led by a strong comeback in both dollars and deals involving startups focused on energy and utilities, according to a national report released today by CB Insights, the New York private company intelligence firm previously known as ChubbyBrain.

Venture firms sank $5.9 billion in 731 deals nationwide during the first quarter, according to the CB Insights Venture Capital Activity Report. Those numbers look especially strong—more than 50 percent higher—in comparison to the same quarter of 2009, when VC investments of $3.9 billion in 483 companies hit an 11-year low.

The results also are stronger sequentially. The $5.9 billion is a nearly 7.3 percent gain over the $5.5 billion that was invested during the fourth quarter of 2009. The analysts at CB Insights suggest that both VC investors and entrepreneurs are gaining confidence about their prospects in the wake of the financial crisis that took the U.S. economy over a cliff in late 2008. (See details for California, Massachusetts, and Washington below.)

Q1 2010 CB Top 10 Cities.

Healthcare remained the single largest sector for venture money, although less VC money was invested in more deals than the previous quarter. Venture activity in Massachusetts and New York also gained against California, although the Golden State still claims the lion’s share of both dollars and deals.

In its 32-page report, CB Insights says, “While $5.9B remains far below quarterly levels seen before the ’08-’09 recession, there is some belief that the VC asset class has perhaps reset at a lower but ultimately more sustainable and healthier level.”

The 731 deals counted during the first quarter of 2010 is 6.4 percent higher than the 687 companies that got funded in the previous quarter, and represents the highest level of deal activity since late 2008. The dollars invested per deal declined, which suggests that VCs are doing smaller deals, but the analysts say they’re encouraged by eight IPOs during the quarter and increasing M&A activity.

VCs invested more than $1.3 billion in cleantech and energy deals, a 134 percent jump over the $565 million invested in the previous quarter, when green deals receded significantly. CB Insights attributes that to a handful of “mega-investments.” But the deal count in this sector also increased by 55 percent over the fourth quarter of 2009, with 85 companies getting funding so far this year.

Other points noted by CB Insights:

—The geographic distribution of VC investments increased, even though three states (California, Massachusetts, and New York) accounted for 69 percent of the VC dollars invested and 61 percent of the deals. Nine other states (Texas, New Jersey, Washington, Pennsylvania, Colorado, Florida, Maryland, Minnesota, and Connecticut) had at least 10 venture deals during the quarter.

—California accounted for 49 percent of all dollars invested and 41 percent of all deals, but Massachusetts has steadily increased its share of venture dollars—from 9 percent in the second quarter of 2009 to 15 percent in the first quarter of 2010 (New York accounted for 5 percent). The number of deals in Washington state increased for the third straight quarter, with 30 companies getting $138 million (a result that ranked the state at No. 5 in terms of deals and No. 7 on dollars invested). That compares with $165 million for 26 deals in the previous quarter. The report notes that most of the VC investments in Washington are in the Internet sector, where investment rounds are relatively smaller.

—VC investments got smaller across all deal stages, with the amount invested in early-stage deals falling by 21 percent compared with the prior quarter.

VC Investments by Sector -  CB pie chart

—Healthcare remained the single largest sector for venture investments, (at 23 percent of dollars invested) with almost $1.4 billion going to 172 companies. That represented a slight increase in the number of deals (from 167 healthcare investments) and a nearly 24 percent decline from the $1.8 billion in the prior quarter. VC investments in Internet companies accounted for 21 percent of the total, and funding for startups focused in the energy and utilities sector got 15 percent. The Internet sector saw the highest number of deals (30 percent) while healthcare accounted for 24 percent.

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