The capital markets may be pretty tough to navigate right now, but there’s plenty of venture capital money flowing. According to the latest from Dow Jones VentureSource, investors participated in 765 deals in Q3 2011 – to the tune of $8.4 bn. That’s up 29 per cent for investment size and 8 per cent for number of deals year over year. The median amount raised last quarter was $6 mn, up 20 per cent year over year.
‘Venture investment rose in the third quarter, putting the industry on pace to near pre-recession investment levels by the end of the year,’ says Jessica Canning, global research director for Dow Jones VentureSource. ‘While it’s unclear how long venture capitalists can continue at this pace given the weak fund-raising and difficult exit environments, the increase in deal activity, especially among early-stage start-ups, shows VCs are optimistic they will be able to support the next generation of start-ups.’
The venture capital market is thriving.
The medical device space out-raised biopharm for the first time since 1998, with 68 deals good for $857 mn. The number of deals was up 15 per cent year over year, with capital invested in the sector up 30 per cent year over year.
In biopharm, there were 78 deals last quarter, and $715 mn in capital invested. This is off from $865 mn raised over 71 deals a year earlier.
In both sectors, early-stage companies did well: 42 per cent of the biopharm deals were early stage, as were 26 per cent of the medical device deals.
‘Although the biopharmaceuticals sector lost its long-held place as the leader of the healthcare industry, early-stage investment was strong, showing that investors are building a pipeline,’ according to Canning. ‘In Medical Devices, investments were weighted toward the later-stage deals, which could be a result of concerns over the clarity of the FDA’s requirements weighing more heavily on device investors.’
Overall, the healthcare sector picked up $1.9 bn in venture capital, across 184 deals. That represents an 11 per cent drop in invested capital and a 9 per cent up-tick in deal flow.
Before the IPO market seized up, consumer business was the darling sector of the market. It includes such hot 2011 IPOs as Zillow, LinkedIn and Pandora. Well, venture capital firms apparently see the consumer business sector as the future of the IPO market, too. Venture capital investors pumped $1.3 bn into consumer business companies last quarter through 104 deals. In Q3 2010, it took 94 deals to raise half that amount.
This year, the sector has pulled in $3.8 bn in venture capital money over the first three quarters and appears to be on pace to beat the full-year 2010 total of $4.2 bn.
Consumer internet is particularly strong, with 57 per cent of the deals closed either first-round or seed funding. 30 per cent were later stage and accounted for $1 bn of the quarter’s capital raise for the consumer business sector.
‘VCs are actively funding new Consumer Internet companies and pouring significant amounts of capital into later-stage deals, but second rounds are lagging,’ says Scott Austin, editor of Dow Jones VentureWire. ‘If investors continue focusing on later-stage companies that would likely have exited years ago had market conditions been better, the hundreds of young Web start-ups that raised financing in the last two years will face intense competition for second rounds.’
Software pushed the IT sector higher in Q3 2011. The sector as a whole raised $2.1 bn over 227 deals, up 9 per cent in capital but down 7 per cent in deal flow. Software took the bulk of it: 165 deals, $1.3 bn. Semiconductor and hardware fell, however.
Business and financial services saw an increase of venture capital invested of 65 per cent and 7 per cent for deal flow. The sector raised $1.5 bn over 139 deals. Business support services led the way, with $1.2 bn over 104 deals. Energy and utilities picked up $635 mn over 33 deals, up from 23 deals and $381 mn a year earlier. Renewable energy accounted for almost all the action in the sector: $621 mn over 30 deals.
Across sectors, the early-stage deals led the way. First-round and seed deals accounted for 42 per cent of transactions and 21 per cent of capital invested last quarter. In Q3 2010, early stage was good for 36 per cent of deals and 22 per cent of capital raised.