U.S. Venture Investment in 2010 Tracks Ahead of Last Year

NEW YORK, Oct. 25 /PRNewswire/ -- Venture investors put $5.5 billion into 662 deals for U.S.-based companies during the third quarter of 2010, a 5% drop in investment but a 2% increase in deals from the same period last year, according to Dow Jones VentureSource. Despite the investment drop during the most recent quarter, $18 billion was put into 2,016 deals during the first three quarters of 2010, a 10% increase in both investment and deal activity over the same period last year.

"The uptick in venture investment through the first three quarters reflects the fact that the fund-raising and liquidity markets are also improving," said Jessica Canning, global research director for Dow Jones VentureSource. "With more cash on hand and with exits freeing up capital slated for their portfolio companies, deal making is picking up."

The median deal size for the third quarter was $5 million, on par with the same period last year.

Angels and Venture Firms Do More Deals Together

During the first three quarters of the year, 68 deals that raised $282 million were funded by both angel groups and venture capital firms. This is an uptick from the same period last year when 59 co-investment deals raised $236 million.

"As venture capitalists scout younger companies, especially in the consumer and Internet spaces, we are seeing them tap into and co-invest with angel groups," said Ms. Canning.  

Investors Gravitate to Business Technologies

The Business and Financial Services industry had a strong quarter as 121 deals raised $841 million, up from 103 deals that raised $708 million during the same period last year. Within this industry, the Web-heavy Support Services sector, which includes advertising platforms, data management services and online marketplaces, saw a 56% increase in investment as 94 deals raised $667 million.

Scott Austin, editor of Dow Jones VentureWire, said: "Enterprise startups have two advantages: customers with capital and a clear path to revenue. Corporations are sitting on a lot of cash, some of which will be spent on upgrades and new technologies, and startups targeting the enterprise often have a revenue strategy from the outset, which makes them attractive investment options."

Investment in the Consumer Services industry dropped 20% as 100 deals raised $560 million. The industry is driven by the Consumer Information Services sector, which includes social Web and other Internet companies. Consumer Information Services companies raised $495 million for 83 deals, a 15% drop in capital invested from the same period last year.

IT Industry Boosted by Software

The Information Technology (IT) industry garnered the largest proportion of deals and dollars in the most recent quarter. In IT, 232 deals raised $1.8 billion, a 35% jump in capital invested from the third quarter of 2009. Investment in the Software sector spiked 67% as 159 deals raised $1 billion.

Healthcare Investment Soft

Healthcare companies raised $1.7 billion for 164 deals in the third quarter, an 11% drop in capital raised from the same period last year. Investment in the Biopharmaceuticals sector fell 7% to $854 million for 73 deals and investment in the Medical Devices sector fell 26% to $621 million for 59 deals.

Renewables Drive Investment in Energy Industry

The Energy & Utilities industry garnered $359 million for 21 deals during the third quarter. Deal activity increased by two, while capital invested slipped 28%. The Renewable Energy sector continued to drive the Energy industry's total as 16 deals raised $221 million in the third quarter.

Early-Stage Companies Claim Larger Proportion of Deals, Dollars

Seed- and first-rounds accounted for 34% of deals and 20% of capital invested during the most recent quarter, up from the same period last year when early-stage rounds claimed 31% of deal activity and 15% of capital raised. Later-stage deals accounted for 42% of the third quarter's deals and 57% of total capital raised in the most recent quarter.

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For information on Dow Jones VentureSource's research methodology, visit http://bit.ly/VSFAQs. For general information about Dow Jones VentureSource, visit http://www.dowjones.com/privatemarkets.

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SOURCE Dow Jones