Flurry of Early Stage Internet Deals Highlight Q4 VC Activity; Investments Slip to $5.5B

Venture investing settled in a bit during the fourth quarter of 2009, but the analysts at ChubbyBrain, the New York firm providing the data, are encouraged by the overall mix, saying, “optimism, albeit of the cautious variety, seems to have found its way back.”

While the total amount of venture capital investments during the quarter declined to $5.5 billion nationwide, compared with $5.9 billion during the fourth quarter of 2008 (and $6.1 billion in Q3 2009), ChubbyBrain counted 687 Q4 deals nationwide, the highest number in five quarters. (That data tracks well with figures released last week by Dow Jones Venture Source.) Total VC activity for the year amounted to $20.8 billion invested in 2,461 companies, according to the company, an information services startup that tracks the entrepreneurial economy.

ChubbyBrain did not characterize the decline in total VC dollars invested during Q4 as a big concern. While the last three months of 2009 saw venture investments decline nearly 7 percent year-over-year and almost 10 percent from Q3, the fourth quarter still showed a steady, month-over-month increase in deal volume. ChubbyBrain notes that a handful of very large deals increased the Q3 totals significantly.

VC investments in green and cleantech startups also fell 38 percent in dollar terms in Q4 versus Q3; energy sector investments plunged by more than 50 percent. But the overall rise in Q4 deal activity reflects an increase in VC investments in early stage companies, especially in the Internet sector—where early stage investments accounted for 49 percent of the deal volume. As ChubbyBrain notes, this seems to put to rest concerns voiced earlier this year about VCs fleeing riskier early stage investments. Nearly 21 percent of the capital and 37 percent of the deals involved early stage companies during the quarter.

California Quarterly Trend

Among the top cities for VC deals and investments, ChubbyBrain ranks San Francisco No. 1, with 50 deals totaling $430 million during the fourth quarter, followed by New York (31 and $258M); Palo Alto, CA, (21 and $128M); and Mountain View, CA, (19 and $172M).

San Diego is No. 5, with 18 deals totaling $191 million. Seattle is sixth, with 18 deals and $132 million, followed by Austin, TX, (17 and $81M).

Mass Quarterly Trend

Boston is No. 8, with 17 deals and $95 million in venture investments. Cambridge, MA, is No. 9, with 16 deals and $199 million invested. Sunnyvale rounds out the top 10 (15 deals and $170 million).

The fourth-quarter totals for Boston look more impressive when one includes the nearby communities of Cambridge, Waltham, Woburn, and Lexington. That brings the total number of deals to 51 and overall investment to $475 million, and puts the Boston area head of San Francisco—but not ahead of the Bay Area (see below).

Adding the Washington communities of Redmond, Bellevue, Kennewick, and Bothell to Seattle’s Q4 numbers increases the overall deal count to 26 and VC total to $166 million.

Washington Quarterly Trend

Among states, California continues to represent the top of the mountain in terms of venture investments. ChubbyBrain found that California accounts for 48 percent of total funding nationwide and 44 percent of the deals. As impressive as that might seem, it’s a decline from Q3, when the Golden State accounted for 51 percent of the total number of deals and 56 percent of all VC invested during the quarter.

Of course, Northern California accounts for nearly all of the activity. The Bay Area communities of San Francisco, Redwood City, Mountain View, Sunnyvale, Santa Clara, Palo Alto, San Mateo, San Jose, and Emeryville account for 161 deals and more than $1.57 billion invested during the fourth quarter. Of the top 10 VC investment cities in California during Q4, Chubby Brain found that San Diego was the only Southern California city to make the list.

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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