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VC Investing Activity Shows Some Gains in Second Quarter, But Still Well Below 2008 Levels

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 trend in its report, saying, “Health care investment is proving resilient in the downturn and outpaced IT investment for the first time on record. IT investment remains at a 12-year low and the software sector is suffering the worst of it.”

—VC investments in cleantech totaled $274 million going into 42 companies nationwide during the quarter, according to the MoneyTree Report. While that represented a 15 percent increase in dollars over the prior quarter, it was less than a third of the $910.8 million that went into 71 cleantech deals during the same quarter last year. “I think the capital intensity of cleantech is becoming apparent to many people,” says longtime Venrock partner Ray Rothrock. Plans by the federal government to allocate billions of dollars in grants for renewable energy technologies also may be putting a damper on private venture investments, he says.

—During a conference call with reporters, Rothrock also noted that IT startups developing software and Internet-based technologies that enable big enterprises to save money are getting a lot of VC attention. “In terms of IT, virtual anything” is hot, Rothrock says. “Virtual desktops, virtual service, virtual management… It’s all about cost reduction at the enterprise level. There are not many new markets being created. It’s all about reducing costs at the enterprise.”

—Despite the encouraging signs, experts say the venture industry will remain in the horse latitudes until the IPO market recovers—giving venture firms an outlet for the investments they have accumulating in existing companies in their portfolios. According to Dow Jones, the median deal size fell to $5 million in the second quarter, down from a median of $8 million seen a year ago—and a 10-year low.

VC observers are saying that venture activity has been reset to mid-1990 levels. The big question now is whether that’s temporary or longer-lasting. As NVCA president Mark Heesen put it, “We continue to engage in a healthy debate as to the right level of funding for our industry…”

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