VC Funding Levels Out as Early Stage Turns Up & Top 10 Deals

Consistent and modest are the words that seem to best describe U.S. venture capital activity during the second quarter, as VC investments remained more or less level with the first three months of 2013, according to recent data from several venture-tracking surveys.

But the pace of venture investing is down in comparison to the second quarter of 2012, especially in terms of dollars invested. We saw signs of a second-quarter plateau earlier this week data from the New York financial firm CB Insights, which said the $7 billion invested during the three months that ended June 30 was a 14 percent decline from the $8.1 billion VCs invested during the same quarter in 2012.

More details being released today in the MoneyTree Report shows that venture capitalists invested $6.7 billion in 913 deals during the second quarter. While that amounted to an 11.7 percent increase in funding from the prior quarter (when $5.97 billion went into 896 deals), it was down 9 percent from the $7.3 billion that VCs invested in the year-ago quarter. The number of deals also slipped 5 percent (from 970 last year), according to MoneyTree data.

The MoneyTree report was prepared by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), using data provided by Thomson Reuters.

A rival VC report from Dow Jones VentureSource found that venture firms invested $7.2 billion in 801 companies during the second quarter. That amounted to only a 2 percent decrease from the $7.38 billion invested during the previous quarter (and a negligible change from the 805 deals). But it was a 19 percent drop from the $8.9 billion invested during the second quarter of 2012, and a 16 percent decline from the 959 deals done a year ago.

Each survey uses its own sources and methodologies to count VC activity, so the numbers in each survey never align. But the overall trends are roughly comparable, and the surveys mostly suggest that venture funding is pulling back in 2013.

Some other highlights extracted from the MoneyTree Report:

—VCs invested about $134 million in 37 seed-stage companies during the second quarter, which represented a 34 percent decrease in dollars and a 29 percent drop in deals from the prior quarter. But investments in early stage deals rose to their highest level in six quarters, jumping nearly two-thirds in dollars, to $2.5 billion, and 18 percent in deals, to 480.

—VC investments in Internet-specific deals surged, with more than $1.86 billion going to 270 Internet deals. That was a 39 percent increase in dollars over the first quarter, when $1.34 billion was invested in 241 deals. During the year-ago quarter, venture firms invested $1.9 billion in 280 companies.

—The MoneyTree Report breaks out VC funding for software as a separate category. Although funding dropped by 7 percent (or about $170 million), the $2.1 billion that went to 325 software companies was the highest level of funding in any industry during the quarter.

—Venture dollars invested in biotechnology surged by 40 percent over the first quarter. Data released from the MoneyTree Report shows a total of $1.27 billion invested in 103 biotechs, while $902 million was invested in 99 biotechs during the first quarter. It was nearly 68 percent more than the second quarter of 2012, when venture firms invested 755 million in 98 biotechs.

—Venture investments in medical devices and equipment amounted to $542.9 million in 71 deals, a 1 percent decline in both dollars and deals from the prior quarter, when $549.7 million went into 72 deals.

—The second quarter marked the sixth consecutive quarter of declining investment levels in the clean technology sector, which in the MoneyTree Report comprises alternative energy, pollution and recycling, power supplies, and conservation technologies. The $364 million that went into 43 deals amounted to a 6 percent decline in dollars and a 31 percent fall in deals from the prior quarter.

“The increase in early stage investing is an encouraging sign that entrepreneurs with innovative ideas can get the funding they need to succeed,” says Mark McCafferty of PricewaterhouseCoopers. “As the exit window continues to open, we’ll continue to see VCs shifting their focus back to companies in the earlier stages of development.”

The top 10 deals of the quarter, according to the MoneyTree Report, were:

Fab.comNew York
Precision for MedicineChevy Chase, MD$150M
Bloom EnergySunnyvale, CA$121.8M
IntrexonGermantown, MD$85.6M
Acumen BrandsFayetteville, AR$83.2M
TwilioSan Francisco$70M
OpenEnglishCoconut Grove, FL$65M
VideologyBaltimore, MD$60M
TrevenaKing of Prussia, PA$60M
EventbriteSan Francisco$60M

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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