Q3 Venture Investing Waxed in Software, Internet, IT—Waned in Life Sciences

Xconomy San Diego — 

The numbers rarely agree, but a third set of venture investment data for the third quarter also shows a nationwide decline in life sciences funding, a trend that’s also apparent in venture data for the San Diego area.

The latest venture survey, from Dow Jones VentureSource, shows VCs putting $8.37 billion into 765 deals in all kinds of emerging businesses throughout the United States during the three months that ended Sept. 30. That was a 29 percent increase in venture investments during the same quarter in 2010 (when VentureSource counted $6.48 billion) and an 8 percent rise in the number of deals (from 709).

The year-over-year trend of increased nationwide venture funding that VentureSource charted also was apparent earlier this week in the MoneyTree Report and in the results that CB Insights released last week. All three surveys also showed a general, year-over-year contraction in venture capital going to healthcare and life sciences deals—particularly in biotech—while financing for software, IT, and Internet deals generally increased.

The similarities mostly end there, and it becomes a matter of choosing which survey you prefer—or maybe which one you want to believe in. The most important discrepancy to me was that VentureSource and CB Insights showed strengthening VC activity through the third quarter, and at a pace that hasn’t been seen for years. In contrast, the MoneyTree Report shows a significant slowdown during the same period.

In the greater San Diego area, the VentureSource survey found that VCs invested $205.7 million in 19 deals during the third quarter. That was a 10 percent decline in dollars (from $229.7 million) and a 13 percent decline in deals (from 22) during the same quarter last year.

Still, it was a strong quarter for venture investments in technology, according to VentureSource, with funding for biotech, medical devices, and healthcare deals getting a combined total of less than $14.8 million during the quarter.

In contrast, none of the venture capital for San Diego’s three biggest deals went to life sciences startups, according to the VentureSource data. The cash that went to the top three companies—OneRoof Energy ($50 million); Mellmo ($30 million); and AwarePoint ($27 million)—amounted to $107 million, or 52 percent of San Diego’s total venture funding for the quarter.

Doug Regnier, a partner in the San Diego office of the Ernst and Young accounting firm, also points out that almost 60 percent of all venture funding in San Diego went to later stage companies during the quarter. “The middle rounds are the tough rounds, where money seems to be scarce,” Regnier says. “VCs are willing to invest in early stage companies, so the middle-stage companies with more mature businesses really have to manage their businesses much tighter.”

The MoneyTree Report shows a similar picture for San Diego’s third quarter, with $201.8 million invested in 21 local deals, according to data released by PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters. The amount of capital was unchanged from the same quarter last year, when $201.8 million was invested in 32 deals (a 34 percent decline in deals). A more telling trend might be the cumulative total of venture capital invested in San Diego so far this year, which amounts to $567.7 million in 82 deals. It’s running 13 to 14 percent behind 2010, when $652.5 million was invested in 95 deals through the first three quarters.

Software also scored big in the breakout of San Diego data from the MoneyTree Report, with six deals capturing $98 million—or 29 percent of all venture dollars invested here during the third quarter. The total for San Diego’s life sciences sector was $26 million—or 13 percent of all third-quarter investments—invested in nine deals. It’s a sharp contrast to the preceding quarter when $186 million—or 87 percent—went invested in San Diego’s life sciences sector.

The MoneyTree Report also includes San Diego’s 10 biggest venture deals during the third quarter:

San Diego’s Top 10 Q3 Venture Deals
OneRoof Energy$50 million
Mellmo$30 million
AwarePoint$27.4 million
Zeebo$17 million
Daylight Solutions$15 million
SweetLabs$13 million
SmartDrive Systems$10 million
Elevation Pharmaceuticals$9.66 million
TakeLessons.com$6 million
Astute Medical$6 million

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