A Return to Normalcy: MoneyTree Tracks Venture Funding Gains in 2010

Another report on venture investing is being released today, this time showing a decline in fourth-quarter deal activity compared with the same quarter in 2009—albeit a slight uptick from the previous quarter—and a significant overall gain for the entire year.

Venture funding during the fourth quarter of 2010 amounted to $5 billion in 765 deals nationwide, according to the MoneyTree Report from the National Venture Capital Association (NVCA) and PricewaterhouseCoopers, based on data from Thomson Reuters. That represents a 6.8 percent drop in dollars invested and an 11 percent decline in deal count compared with the same quarter of 2009, when $5.4 billion went into 864 deals.

However, the numbers mark a 2 percent increase in dollars and a 3 percent decrease in the number of deals in comparison with the third quarter of 2010, when VCs sank $4.9 billion in 789 deals. Venture investors said in a conference call with reporters that they’re sensing a return to normalcy amid a broader economic recovery and as the capital markets relax from the clampdown that began in 2007.

With the pace of venture buyouts and IPOs increasing, there are fewer later-stage startups now than in recent years, said John Taylor, the NVCA’s vice president of research. “It suggests that a lot of companies that arrived at a later stage, and needed late-stage funding, are starting to move on,” Taylor said during the conference call.

“The overall market for investing has clearly been strengthening,” said Seth Levine, a managing partner at the Foundry Group in Boulder, CO. He said the 2010 data reflects “an increase in activity, and an increase in energy,” and added that he expects to see single-digit growth rates in venture investments in 2011. Levine also singled out advertising technologies, mobile, and personal instrumentation (for monitoring calorie intake, steps taken, and other personal data) as hot areas for tech-related venture investments.

For the year, venture capitalists invested $21.8 billion in 3,277 deals, according to the MoneyTree Report. That’s a 19 percent jump in dollars invested and a 12 percent increase in deals over 2009, when the MoneyTree survey counted $18.3 billion in 2,927 deals.

“2010 for us was what I would call an average year,” said Gerry Langeler of Seattle-area-based OVP Venture Partners. Langeler, who called … Next Page »

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