The new reality of venture funding

PWC is reporting that venture capital investments in the third quarter of 2012 are down. From the report: “investment activity declined 11 percent in terms of dollars and five percent in the number of deals compared to the second quarter of 2012 when $7.3 billion was invested in 935 deals. Investment for the first three quarters of the year was $20 billion into 2,661 deals, a level well below this point last year, making it likely that 2012 will fall short of 2011 in terms of both dollars and deal volume.”

The sector data from the report does shed a little light on what’s happening:

Cleantech investing dropped 20% in dollar terms, but stayed flat in terms of dollars.Software was off a little bit as well, and “Internet-specific investing fell 12 percent in dollars and eight percent in deals from the previous quarter with $1.7 billion going into 250 deals but remained well above the billion dollars per quarter level that has been prevalent for the last two years.”

In terms of stage, “First-time financing (companies receiving venture capital for the first time) dollars declined eight percent in dollars to $1.0 billion in Q3, but the number of deals increased one percent to 297 deals in the third quarter.”

It feels like the big thing is a drop in dollars committed per deal. Since companies are require less to get going, since there were fewer big blockbuster $100mm plus deals and since the number of VC funds (and size) are decreasing it all makes sense that we see a decline.

So this is the middle of a major shift in how the US venture market functions. Smaller deals, smaller VCs with a few big funds… this is reality.

Author: Healy Jones

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