Venture Capital Market Update

Source: WRAL Tech Wire

North Carolina Trends

Venture capitalists made nine investments in North Carolina in Q4 2011 with the deals generating some $59 million, a slight uptick from the third quarter but down more than $1 million from the same quarter in 2010. However, for 2011 deal making totaled only $325 million across 47 deals, the lowest total since 2005 when one excludes the recession year of 2009. North Carolina, the nation’s 10th largest state, ranked 12th nationally for the year and for the quarter.

Nationally, the investment trend was much stronger. Investments jumped 22 percent to $28.43 billion, in 3,673 deals. That’s up from $23.26 billion in 2010, when the money went to 3,526 deals.

Still, Laura Hoke of PricewaterhouseCoopers in Raleigh said some of the data was encouraging, especially for early-stage funding. “We had 12 deals for early stage totaling $113 million,” Hoke said. “That’s way up from prior years.”

Industry is “steady,” Triangle VC says. Read here.

Nationally, funding surges. Read here.

Hoke also noted that biotech and life sciences dominated fourth quarter deals with six in biotech or medical devices. “It seems like ever since I’ve been doing MoneyTree since 2007 that life sciences have really dominated,” she said.

David Jones, a venture capitalist at Southern Capitol Ventures in Raleigh, described the state of the VC industry as “steady.” (Read details here.)

Meanwhile, Suzanne Cantando, spokesperson for Intersouth in Durham, said the southeast’s largest venture firm, is upbeat. “We thought it was a great year to invest,” Cantando told WRAL Tech Wire. “We actually closed three new deals (in Baltimore – CSA Medical, Atlanta – SimplifyMD and Florida – Vergent Medical Systems) in the fourth quarter and several of our Triangle-based companies raised follow-on financing. We’re seeing strong valuations for companies that are raising later rounds, which is also a very good sign.

“Quarter-to-quarter numbers for NC can be deceptive because our data set is fairly small – and a deal can easily slip from one quarter into the next and make the numbers look dramatically up or down.

“The fact that we’ve got more early-stage investing (those 12 deals) means that the number of dollars invested will be lower, too – so I don’t think there’s any real bad news in there. The important thing is that we’re still seeing lots of new companies get created. Triangle Startup Factory’s announcement [in Durham] is exciting – just further indication that there’s a lot going on here.”

Other VCs contacted by WRAL Tech Wire also said they are upbeat about the coming year despite a sluggish 2011. The biggest deal of the quarter was the $27.5 million raised by Greensboro-based 911Interact.

National Market Trends

Funding for startups rose 19 percent in the fourth quarter as venture capitalists fueled money into more companies in the Internet, clean technology and other sectors. According to a study released last month, startup investments grew to $6.57 billion in the October-December quarter from $5.52 billion in the same period in 2010. The volume of deals, though, did not keep up with the amount of money invested. There were 844 deals completed in the fourth quarter, down from 861 a year earlier.

Called the MoneyTree report, the study was conducted by PriceWaterHouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.

“As previously projected, venture capital investing in 2011 exceeded 2010 levels and ranks in the  top three years for VC investing in the past decade,” said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers.

“We saw a resurgence in investments in Clean Technology and Internet-specific companies in 2011, as well as a bit of a jump in average funding in the Internet sector. However, while venture capitalists continue to show their interest in these areas, they are acting prudently and not chasing excessive valuations. Accordingly, despite the increase in investing, we’re unlikely to see these sectors overheat like we saw in the 1999 to 2000 era.”

For all of 2011, venture investments jumped 22 percent to $28.43 billion, in 3,673 deals. That’s up from $23.26 billion in 2010, when the money went to 3,526 deals.

Venture capitalists piped $133.9 million into 80 seed-stage companies in the fourth quarter. That’s down from $233.2 million going to 90 such startups in the fourth quarter of 2010. The decline suggests some caution on the part of venture capitalists looking at the newest, often most risky, startup investments.

A total of 364 early-stage companies snapped up $2.27 billion in venture funding during the quarter. That compares with $1.48 billion going to 318 early-stage startups in the last three months of 2010. The report said 222 companies in the expansion stage received $2.36 billion in funding, compared with 270 companies snagging about the same amount a year earlier. In the later stage, 178 startups received $1.8 billion in the fourth quarter, while $1.4 billion went to 183 companies a year earlier.

Note of Caution

“While venture capital investment grew in 2011, it is important to note that deal volume growth did not keep pace with dollar growth,” said Mark Heesen, president of NVCA. “In most industry sectors, round sizes increased significantly, driving the higher investment levels across most stages of investment. Reasons for this phenomenon differ depending on area of investment.

“For some, the higher rounds are driven by the challenging exit market which requires venture capitalists to fuel their existing portfolios longer and at greater investment levels than in the past. This is particularly acute in the life sciences and clean tech sectors.

“In other sectors such as Internet, software and media, the higher rounds speak to increasing valuations. Given the diversity of the venture investment landscape, we expect these notable distinctions to continue into 2012 as our industry sectors are impacted differently by the continued economic uncertainty and ongoing opportunities in the market.”

Cautious Optimism

By industry, software companies received the most funding with $1.76 billion snagged in the fourth quarter, followed by biotechnology with $1.27 billion.

San Francisco-based internet storage locker Dropbox Inc. got the single-largest investment during the quarter, $250 million. In second place was Better Place Inc., which is based in Palo Alto and builds infrastructure and systems for electric vehicles, with $200 million.

John S. Taylor, head of research at the National Venture Capital Association, said the figures show “cautious optimism.”

About Scale Finance

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