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Venture Capital Investment - 2011

What Types of Industries and Firms do Venture Capitalists Fund?

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Venture Capital Investment - 2011 @funding post

The Great Recession hit venture capital investment hard. Because venture capital investment was hit hard, new start-ups and new existing businesses that would probably have gotten venture capital funding were hit hard. As the U.S. economy pulls out of the Great Recession, the venture capital industry is recovering and is helping our entrepreneurial sector and new businesses recover.

Venture capital investment varies from industry to industry and between economic sectors based on economic activity. Every year does not see the same venture capital investment levels in the same industries. For example, in 2007, right before the Great Recession, venture capital investment in software was flat. In 2011, as you will read below, software was one industry with the largest venture capital investment. What changed in the intervening years?

Venture Capital Investment in 2011

Venture capital investment in 2011 was up 22% over 2010 at $28.4 billion. Even at that level, it was not as high as venture capital investment in 2007 and 2008. In 2007, venture capital investment was at $29.4 billion. The venture capital industry is substantially recovering since the Great Recession - very good news for our business community. The deals in 2011 were up only 4% over 2010, which means that the deals in 2011 were considerably larger. There are a number of reasons that venture capital investment deals were larger in 2011. For example, in the life sciences industry, first round venture capital investment is down because venture capitalists fear that there is considerable uncertainty about whether or not drugs and medical devices can be moved through the FDA approval process in a timely manner. As a result, life sciences companies tend to receive more late stage venture capital.

In 2011, 49% of deals were seed and early stage which is the highest percentage since 1995. That is a good comment on the future of the U.S. economy. There were 1,159 venture capital deals in 2011, up from 2010.

Largest Venture Capital Investments in 2011

Software and biotechnology were the two industries with the largest venture capital investments in 2011. Software increased by 38% and biotechnology by 22%. Next on the list is medical devices with an increase in investment of 20% and clean technology industry at 12%. The Internet-specific companies came in next.

Industry sectors receiving the biggest dollar increases were consumer products, media and entertainment, electronics, and IT services.

Start-up companies needing seed-stage money were hard-pressed to get it in 2011 as venture capital investment in seed-stage deals decreased by a large margin. I am not sure this is particularly good news if you are trying to forecast the future for entrepreneurial and start-up company ventures. On the other hand, the next stage of funding, early-stage funding, received more than one-quarter of venture capital money in 2011, which is good news for start-ups.

Expansion stage funding for companies received one-third of venture capital investment in 2011 which is certainly a good comment on the future of the economy and late stage deals received another third. It seems that venture capitalists are betting more heavily on better established companies at the present time.

Source of Statistics is the PricewaterhouseCoopers/National Venture Capital Association Money Tree Report

Latest on Venture Capital Blogged on 1/31/2012.

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