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

NEW YORK, April 17 /PRNewswire/ -- Venture investors put $4.7 billion to work in 597 deals during the first quarter of 2010, up 12% from the $4.2 billion invested in 522 deals during the same period in 2009, according to statistics released today by Dow Jones VentureSource.

"The up tick in venture investments during the first quarter of 2010 shows the industry is moving toward a slow recovery following the economic downturn," said Jessica Canning, global research director for Dow Jones VentureSource. "As the liquidity and fundraising environments thaw, investors have more capital on hand but continue to deploy it cautiously."

Scott Austin, editor of Dow Jones VentureWire added: "With investors' capital reserves low, the competition is intense not only for entrepreneurs looking to raise financing but also for venture capitalists trying to break into the best companies. This has some companies leaning more heavily on less traditional sources, such as angels for early-stage funding or corporate partnerships in their later stages."

Proportion of Technology Deals Slips as Business Models Change

According to VentureSource, the Information Technology (IT) industry claimed the largest proportion of deals and dollars during the first quarter, raising $1.5 billion for 192 deals, but IT is losing ground in the venture landscape overall. IT accounted for 32% of the deal flow in the most recent quarter, continuing the downward trend that started in 2005. Prior to 2005, IT regularly claimed the majority of deals.

"Business models have evolved beyond a strict focus on products to include services aspects which often generate a recurring revenue stream," said Ms. Canning. "This approach to building companies and generating revenue has led to growth in both the Business Services and Consumer Services industries in recent years."

In IT, the most recent quarter's totals were up 15% from the $1.3 billion invested in 190 deals during the same period last year. Software continued to claim the largest slice of IT investment, raising $822 million for 122 deals, up 13% from the first quarter of 2009. Deal activity in the Electronics and Computer Hardware sector picked up as investors put $257 million into 36 deals, an 82% increase from the $141 million put into 17 deals during the same period last year.

Healthcare companies raised $1.2 billion for 141 deals, a 20% drop from the $1.5 billion put into 130 deals during the first quarter of 2009. Within Healthcare, 59 Biopharmaceuticals deals raised $619 million, down 20% from the same period last year, and 62 Medical Device deals raised $439 million, a 23% drop in capital raised despite an up tick in deals from 47 in the first quarter of last year.

Investments in Energy, Services & Consumer Goods Climb

According to VentureSource, Energy & Utilities companies garnered $351 million for 27 deals, up 69% from the same period last year. All but two of the deals completed in this sector went to Renewable Energy companies.

Both services industries also saw a jump in capital raised. The Business and Financial Services industry saw 99 deals raise $808 million, a 33% increase over the first quarter of last year. Investment in the Consumer Services industry rose 20% to $430 million for 88 deals.

Thanks to larger rounds raised by Consumer Goods companies, investment in the industry spiked 75%. In the first quarter, 14 Consumer Goods deals raised $288 million.

Deal Size Drops, Older Companies Claim More Capital

The median deal size for the first quarter of 2010 was $4.5 million, down slightly from the $5 million seen in the same period last year, according to VentureSource. Later-stage deals accounted for 38% of the first quarter's deals which was on par with the first quarter of 2009, but claimed a larger proportion of capital. In the most recent quarter, later-stage deals garnered 59% of capital invested, up from 55%. Seed- and first-rounds accounted for 35% of deals and claimed 17% of capital raised during the most recent quarter, a change from the same period last year when early-stage rounds accounted for 33% of deal activity and 19% of capital raised.

"After a prolonged slow period for the liquidity markets, there is a backlog of later-stage companies looking to exit," said Ms. Canning. "Until investors can find a viable exit opportunity, they will focus their capital on keeping these companies alive."

To download graphics for this report, visit http://bit.ly/1Q10Fin.

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

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