Investment in Major Venture Hubs Ahead in First Quarter Despite Slowing Deal Flow

NEW YORK, May 3, 2011 /PRNewswire/ -- Venture capitalists from around the world invested $9.8 billion into 967 deals for companies based in the U.S., Europe, Canada, Israel, Mainland China and India during the first quarter of 2011, according to Dow Jones VentureSource. This represents a 20% jump in investment but a 7% decline in deal activity from the same period in 2010 when $8.2 billion was raised for 1,038 deals.  

"In an increasingly globalized industry, capital can move quickly between regions to follow the most promising start-ups," said Jessica Canning, global research director for Dow Jones VentureSource. "However, any shocks to the local liquidity markets will quickly drive capital away or cause investors to put everything on hold. Given the uneven nature of IPOs and acquisitions right now, I believe we're seeing a bit of both."

Europe: Record-Low Deal Activity Dampens Modest Investment

Investors put $1.5 billion into 182 deals for European companies during the first quarter of 2011, a 17% increase in investment but a 35% drop in deals from the same period last year. This represents the lowest quarterly deal count since VentureSource began tracking the region in 2000. The median size of a venture capital deal also fell slightly, to $2.8 million in the first quarter of 2011 from $2.9 million in the same period last year.

"Liquidity is scarce and fund-raising has lagged. Without capital coming in from exits or limited partners, Europe has retrenched to a smaller number of key deals in core industries such as healthcare and promising industries such as consumer information services, which includes social media, search and entertainment companies," said Anthony Sheldon, research manager, Dow Jones VentureSource.

Healthcare again led the way among industries, collecting $500 million for 39 deals, a 5% increase in investment and 47% drop in deal activity. The Information Technology (IT) industry hit record lows for both deal flow and capital invested as companies raised $227 million for 49 deals.

For a detailed venture financing report on Europe, visit http://www.dowjones.com/pressroom/releases/2011/05032011-EUVC-0137.asp.

Asia: Investment in China, India Focused on Consumer Companies

During the first quarter of 2011, venture investors put $1.4 billion into 62 deals for companies in Mainland China, representing a 3% decline in investment and 7% decline in deal flow from the same period in 2010. The median deal size hit a record high of $15 million, a 20% increase over the same period last year when the median was $12.5 million.

The Consumer Services industry raised $759 million for 36 deals in the first quarter, accounting for 55% of capital invested and 58% of deals completed in China. Investment in this industry was largely driven by interest in the Consumer Information Services sector, which includes social media, shopping and search companies. Consumer Information Services companies collected $592 million for 28 deals, up significantly from the same period last year when 11 deals raised $161 million.

The Business and Financial Services industry suffered a drop in both deal flow and capital invested as $87 million went into 9 deals in the first quarter, a 68% drop in investment and 25% decline in deal activity from the same period last year. Business Support Services, which benefited from strong interest in advertising and marketing companies, was responsible for closing 80% of capital raised within the industry.

Investment in China's IT industry was up 64% in the first quarter to $334 million. However, deal flow shrank by 36%, with 9 deals completed in the quarter. The IT industry has seen interest from investors steadily decline. IT companies accounted for 36% of deals completed in China in 2005, when VentureSource began tracking the region, falling to 20% by 2010 and 15% in the first quarter of 2011.

In India, venture capitalists invested $232 million in 26 deals during the first quarter of 2011, a 30% decrease in capital invested but a 30% increase in deal activity. Fifty-eight percent of investment went to Consumer Services companies, which collected $134 million for 12 deals, a 26% drop in capital from the $182 million raised for 4 deals during the same period last year. The median deal size in India declined 40% to $6 million.

Israel: Capital and Deal Flow Fall Slightly

Investors put $60 million into 13 deals for Israel-based companies during the first quarter of 2011, a 53% drop in capital invested and 24% drop in deal activity. The median deal size was $4.5 million during the first quarter, 10% below the $5 million median seen during the first quarter of 2010.

North America: Canadian Deal Activity Slows; Large Deals Drive Investment Increase in U.S.

In Canada, 23 deals garnered $185 million during the first quarter of 2011, a 12% decrease in deal activity and 13% decline in capital invested from the same period in 2010. The country's biggest draw continued to be the IT industry, which collected $88 million for 7 deals, 5% more capital and 42% fewer deals during the same quarter of the previous year. The median deal size increased 48% to $8 million during the most recent quarter from $4.8 million in the same period in 2010.

In the U.S., growth in venture capital investment was driven by large capital commitments within the renewable energy, healthcare and information technology sectors. Investors put $6.4 billion into 661 deals for U.S.-based venture companies during the first quarter of 2011, a 35% increase in investment and 5% increase in deals from the same period last year. For additional details, visit http://www.dowjones.com/pressroom/releases/2011/04212011-USVC-0134.asp.

For information on VentureSource's research methodology, visit http://bit.ly/VSFAQs. For general information about VentureSource, visit http://www.dowjones.com/privatemarkets. Follow VentureSource on twitter at www.twitter.com/djventuresource.

*All investment figures are converted to USD using the exchange rate on the first day of the month in which the round closed.

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