Venture Investments Rise 19 Percent in Second Quarter of 2011

Internet-specific investments hit a ten year high in the second quarter of 2011, driving overall venture investment up 19 percent over the previous quarter. The National Venture Capital Association (NVCA) and PricewaterhouseCoopers (PwC) report that venture capitalists invested $7.5 billion in 966 deals during the second quarter. This represents an increase of about 19 percent over the first quarter in both the number of deals and total dollars invested. The gain, however, was less significant when compared to the second quarter of 2010. Compared to that quarter, venture dollars rose only 5 percent and venture deals fell by 32 percent. The greatest increases in activity were seen in the three largest venture markets, California, Massachusetts and New York.

Investment in Internet companies reached $2.3 billion in 275 deals in the second quarter, the highest level of activity since the dot com boom. The NVCA/PwC report classifies companies as "Internet-specific" if their business model is primarily driven by the Internet, regardless of their primary industry. Investment in this classification rose 72 percent in dollars and 46 percent in deals over the first quarter.

Software remained the most active industry, with $1.5 billion in 254 deals. This level represents a 35 percent increase in dollars and a 25 percent increase in deals over the first quarter. The biotechnology and the medical device and equipment industries, the second and third most active categories, also both experienced marked upticks, as did most sectors. The most notable decrease took place in the clean technology sector, in which investment fell by 23 percent in terms of dollars. Cleantech deals, however, increased 11 percent. While the report notes that this level of dealflow would make the second quarter the most active quarter yet for clean technology, a New York Times blog characterized the quarter as a "clear dip". Based on an Ernst & Young report that showed cleantech activity down by a third from the same quarter last year, the blog post finds that generalist VCs are abandoning cleantech investments, with the exception of solar-based companies.

So far, 2011 appears to be on track for a modest increase over last year's level of venture activity. Venture investment in dollars was up 12.2 percent in the first half of the year over the first half of 2010. Deals remained about the same. In the release, NVCA president Mark Heesen warns that if fundraising does not improve soon, than these modest increases will not be able to continue.

Read the NVCA/PWC release at: http://www.nvca.org/