I spent some time this weekend looking at the recent VC funding data for this past quarter to see if any trends jumped off the page. While much of what I could discern in the data felt consistent with what I experienced in the market, there were some surprising themes buried in the details.
In general investment activity this past quarter continued to show some resilience: $7.0 billion was invested in 898 deals, which was an increase of 17% in dollar terms and 11% in number of deals from 1Q12 but importantly was down 12% in dollar terms and 15% in number of deals from 2Q11 (arguably a more relevant comparison). This past quarter, when annualized, was tracking to an investment pace below 2011’s aggregate amount of $29.5 billion but ahead of 2010’s level of $23.4 billion – so evidence of continued recovery from the depths of 2008/2009 recession.
Some other interesting high (and low) lights from the 2Q12 data:
- A major storyline was the strength of the Early stage market. In terms of number of deals, the 410 deals ($2.4 billion) was the highest quarterly level since 1Q01 – over ten years ago. Average deal size was $5.2 million.
- When Seed and Early were lumped together they represented 53% of all deals in the past quarter; in 1Q12 they were 46% of total deals and 48% in 2Q11. Maybe funds are investing earlier to extend the investment runway of their existing funds? It also reflects the continued robustness of the “micro-VC” model which has come of age.
- Average size of Seed deals was $3.2 million, which frankly does not sound like a seed deal to me.
- $2.1 billion was invested in 193 Later stage deals for an average size of $10.8 million. Later stage declined 10% on a dollars basis and 11% on number of deals basis over the past two quarters – which is not what I would have expected as VC’s look to invest closer to the liquidity event.
- “First time investing” – that is the number of companies raising VC dollars for the first time was up 27% from the prior quarter and represented nearly 15% of dollars invested and 31% of all companies which raised capital this past quarter.
- As a reflection of the broad rotation away from industries that are capital intensive with long product development cycles, life sciences was really hurt this past quarter, attracting only $1.5 billion of the total $7.0 billion invested (or 21% of the total). In 2Q11, the life sciences attracted 29% of all VC dollars. Notably biotech declined from $1.4 billion to $0.7 billion across those two quarters.
- Software category strengthened this past quarter increasing to $2.3 billion across 290 companies which ironically was the same number of companies although only $1.7 billion in 2Q11.
- Another fascinating storyline involved cleantech – which many analysts had written off for dead. On a dollars basis cleantech investing increased 8% from prior quarter but the number of companies was down 28%. The average deal size for cleantech was $18.9 million, and in fact, the top three deals in the quarter were all cleantech investments (Fisker Automotive, Harvest Power, Bloom Energy – together those three companies raised $360 million or 5% of all VC dollars invested last quarter).
- The top ten deals in 2Q12 raised $876 million or 12% of all VC dollars. Interestingly, as the VC industry consolidates, are we also going to see more consolidation around which companies attract VC dollars? Worth watching.
- Nothing terribly interesting when one looks at the region data. Silicon Valley still dominates having attracted $3.2 billion of the $7.0 billion invested (46%) which is up strongly from 39% in 1Q11. New England, which remains comfortably in the Silver Medal position at $843 million invested, was only 26% of the amount for Silicon Valley. The New York Metro region attracted $567 million, which is a 52% increase from the prior quarter but down 15% from the prior year’s second quarter.
- And one of my favorites: there were 10 states which had zero venture deals and 27 which had three or less – another sign of VC consolidation – many states are at risk of being left behind as the VC industry consolidates.
Obviously the venture industry is now comfortably a global phenomenon so I also looked at some headlines from overseas…
- Interestingly, and quite surprisingly, Europe VC investing activity increased by 37% to 1.26 billion Euros in 273 deals this past quarter.
- China, though, decreased by 45% to $1.9 billion in the first half of 2012 when compared to first half 2011 (which compares to $13.1 billion in the US) across 103 deals, which was down 38% year-over-year (as compared to 1,707 deals in the US in first half 2012).