U.S. Venture Investment Rose 10% in 2011, Despite Fourth Quarter Decline

NEW YORK, Jan. 20, 2012 /PRNewswire/ -- Venture capital investment slowed in the fourth quarter of 2011 as investors put $7.4 billion into 803 deals for U.S.-based venture companies, a decline in both capital invested and deal activity from the third quarter, according to Dow Jones VentureSource. The decline, which mirrors a fourth-quarter drop in exit activity, is notable because the final quarter of the year is traditionally one of the most active for financings and exits.

In all of 2011, investors put $32.6 billion into 3,209 venture deals, a 10% increase in capital raised and 6% increase in deals from 2010. 

"The fourth quarter may have seen a temporary slowdown as venture capitalists reset their expectations for the exit market and entrepreneurs adjusted their companies' valuations to suit the current climate," said Jessica Canning, global research director for Dow Jones VentureSource. "Overall in 2011, venture investment continued its steady post-recession ascent with notable strength in enterprise solutions."

The median amount invested in a financing round rose 16% to $5 million in 2011.

Healthcare and IT Investment Steady

In 2011, $8.4 billion was invested in 738 deals for Healthcare companies, a mild change from the previous year when the industry collected $8.3 billion for 747 deals. Biopharmaceuticals remained the industry's most active investment area with 302 deals raising $3.9 billion, a 6% drop in deals and flat investment. Medical Devices was a close second with 290 deals raising $3.3 billion, a 3% decline in deal activity and 27% increase in investment.

The Medical IT sector, which has been benefiting from interest in electronic health records, Web and mobile applications, and information management solutions, saw a 26% increase in deal activity and 22% increase in capital raised as companies in the sector collected $633 million for 86 deals in 2011.

Companies in the Information Technology industry raised $7.9 billion for 1,004 deals in 2011, a slight uptick from 2010 when 967 deals raised $7.7 billion. The Software sector continued to be the most active investment area and was the only IT sector that saw an increase in both deals and capital raised as 743 deals raised $4.6 billion in 2011.

Venture capitalists' interest in the hardware and chip sectors is steadily dwindling as much of the innovation in these areas is now done by corporations. Deals in the Electronics and Computer Hardware sector fell 13% to 110 and deals for Semiconductors fell 33% to 50. The Electronics and Computer Hardware sector and the Semiconductors sector raised $1.5 billion and $598 million in 2011 respectively.

VCs Put $5.2 Billion into Consumer Web Companies

Large later-stage rounds raised by well-known Web companies, including Twitter, Zynga and LivingSocial, pushed investment in the Consumer Information Services industry to $5.2 billion for 452 deals during 2011, a 23% increase in capital collected and 14% increase in deal activity from the previous year.

While 72% of the capital raised for the sector went to later-stage deals, there was still strong interest in seed- and first-rounds, which accounted for 57% of the sector's deals.

"Venture capitalists still have a strong appetite for early-stage Web start-ups, but more mature companies may be swallowing some of the available cash," said Zoran Basich, editor of Dow Jones VentureWire. "As companies delay the process of entering the public markets during a difficult time for IPOs, the additional venture funding they need is leaving investors with less capital for new investments."

The median amount invested in a first round for a Web start-up shrank 33% to $2 million, while the median for a later-stage round ballooned 43% to $10 million.

Investment in Enterprise Start-Ups Rises

Driven by interest in data management, marketing and advertising companies, investment in the Business and Financial Services industry rose for the third consecutive year. In 2011, 546 deals for companies developing enterprise technologies or services raised $5.1 billion, a 9% increase in deals and 36% increase in capital collected from 2010.

Uptick in Energy Deals

The Energy and Utilities industry raised $2.9 billion for 134 deals, as investment was flat but deal activity rose 14%. As usual, Renewable Energy companies claimed most of the industry's investment, as 110 deals raised $2.7 billion.

Early-Stage Deals Increase

Seed- and first-rounds accounted for 43% of deals and 18% of capital invested during 2011, an uptick in deal activity from the previous year when early-stage rounds claimed 39% of deals and 19% of capital raised. Second rounds dropped slightly from 21% of deal activity in 2010 to 20% in 2011, while the proportion of capital garnered by these deals rose from 18% in 2010 to 20% in 2011. Later-stage deals accounted for 35% of the year's deals and 60% of total capital raised, a shift from the same period last year when they accounted for 38% of deals and 61% of capital raised.

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?from=pr-privatemarkets.  

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