Venture Capital Investment Updates for the First Half of 2010

Dated August 9, 2010

Venture capitalists invested $6.5 billion in 906 deals in the second quarter of 2010, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Quarterly investment activity in the first half of 2010, totaled $11.4 billion going into 1,646 deals, a 49 percent increase in dollars and a 23 percent increase in deals from the first half of 2009 when $7.7 billion was invested in 1,340 deals.

Dollars invested in the Clean Technology sector doubled in the second quarter compared to Q1 of 2010, breaking the quarterly record for the sector. Biotechnology and medical device industries combined saw a notable increase in VC investing during the second quarter, jumping 52 percent in dollars and 36 percent in deals from the prior quarter. Seed and early stage deals also increased notably in Q2 from prior quarters, accounting for a greater percentage of total deals.

Industry Analysis

The Clean Technology sector, which includes alternative energy, pollution and recycling, power supplies and conservation, saw a 107 percent increase in dollars over the first quarter to $1.5 billion, marking the largest quarterly investment ever reported for the sector. The number of deals completed in the second quarter remained flat at 71 deals compared with 70 deals in the first quarter.

The Software industry had the most deals completed in Q2 with 229 rounds, representing a jump of 43 percent from the 160 rounds completed in the first quarter. In terms of dollars invested, the Software sector was in third place, increasing 43 percent from the prior quarter to $1.0 billion in the second quarter of 2010.

Internet-specific companies received $879 million going into 212 deals in the second quarter, flat in terms of dollars and a 25 percent increase in deals over the first quarter of 2010 when $891 million went into 169 deals. ‘Internet-Specific’ is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.

Stage of Development

Seed and Early stage investments rose in the second quarter, rising 54 percent to $2.3 billion. The number of Seed and Early stage deals increased 32 percent to 429 from the prior quarter. Seed/Early stage deals accounted for 47 percent of total deal volume in the second quarter, compared to the first quarter when it accounted for 44 percent of all deals.

Expansion stage dollars increased 48 percent in the second quarter, with $2.7 billion going into 277 deals. Overall, Expansion stage deals accounted for 31 percent of venture deals in the second quarter, down slightly from 32 percent in the first quarter of 2010.

Investments in Later stage deals remained flat at $1.5 billion in the second quarter while the number of deals saw an increase of 14 percent from the prior quarter, rising to 200 transactions. Later stage deals accounted for 22 percent of total deal volume in Q2, compared to 24 percent in Q1 2010 when $1.6 billion went into 175 deals. The average Later stage deal in the second quarter was $7.7 million, which decreased from $8.9 million in the prior quarter.

First-Time Financings

First-time financing (companies receiving venture capital for the first time) dollars rose 7 percent from the prior quarter while the number of deals increased 27 percent, with $1.1 billion going into 281 deals in Q2 2010. First-time financings accounted for 17 percent of all dollars and 31 percent of all deals in the second quarter, compared to 21 percent of all dollars and 30 percent of all deals in the first quarter of 2010.

Companies in the Biotechnology, Software, and Industrial/Energy industries received the highest level of first-time dollars. The average first-time deal in the second quarter was $4.0 million, which dropped from $4.7 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments in Q2, garnering 63 percent of the dollars and 73 percent of the deals, a six point jump in terms of dollars, however the percent of total deals remained flat.

Information and data from the  MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA).