WASHINGTON, October 19, 2012 – Venture capitalists invested $6.5 billion in 890 deals in the third quarter of 2012, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Quarterly venture capital (VC) investment activity declined 11 percent in terms of dollars and five percent in the number of deals compared to the second quarter of 2012 when $7.3 billion was invested in 935 deals.
Investment for the first three quarters of the year was $20 billion into 2,661 deals, a level well below this point last year, making it likely that 2012 will fall short of 2011 in terms of both dollars and deal volume.
"The decline in funding for Seed/Early stage companies is firmly in place - we've seen a drop in dollars and deals both quarter-over-quarter and year-over-year," remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. "We're seeing fewer new venture funds being raised which means less capital is available for new investments. And, we're seeing venture capitalists be very cautious with the capital that is available due to the lack of a significant number of liquidity events. Instead, venture capitalists are continuing to support the companies already in their portfolio."
“The third quarter numbers tell a story consistent with investment themes we have been seeing throughout 2012,” said Mark Heesen, NVCA president. “Information technology investment continues to be very strong, particularly in the Internet arena while life sciences investment remains low, reflecting ongoing concerns regarding regulatory uncertainty, capital intensity and investment time horizons in the space. We also continue to see clean tech investment shifting concentration to smaller, more capital efficient deals. Opportunities continue to abound in each of these sectors, but lower venture fundraising levels will push investment dollars down as the industry recognizes it cannot put out more money than it takes in.”
The Software industry received the highest level of funding for all industries with $2.1 billion invested into 304 deals during Q3, marking the fourth quarter in the last five in which investment in Software exceeded two billion dollars. This level of investment represents a 12 percent decline in dollars and a one percent increase in deal volume from the second quarter when $2.4 billion was invested in 300 deals.
Life Sciences (Biotechnology and Medical Devices) investing increased in terms of dollars but declined in deal volume for the third quarter of 2012 with $1.7 billion going into 181 deals, comprising 26 percent of VC dollars invested. Investment in Biotechnology increased by 64 percent in terms of dollars and 22 percent in terms of deals with $1.2 billion going into 116 companies in Q3. This increase is driven by a number of larger, follow-on rounds in the third quarter compared to Q2 when just $755 million went into 95 companies. Medical Device investing declined for the third consecutive quarter, falling 37 percent in dollars and 27 percent in deal volume with $434 million going into 65 companies, experiencing the lowest dollar level of investment since 2004. Overall, Life Sciences investment for the first three quarters of 2012 is down 19 percent in dollars and 12 percent in deals from the same time period in 2011.
Internet-specific investing fell 12 percent in dollars and eight percent in deals from the previous quarter with $1.7 billion going into 250 deals but remained well above the billion dollars per quarter level that has been prevalent for the last two years. Additionally six of the top 10 deals for the quarter were in the Internet-specific category. 'Internet-specific’ is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.
The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, also saw a 20 percent decrease in dollars but a two percent increase in deal volume with $791 million going into 58 deals during the third quarter compared to $991 million going into 57 deals in the second quarter. The dollar decrease in Q3 occurred despite the fact that three of the top ten deals fell into the Clean Tech category, suggesting most of the remaining deals of the quarter were comprised of smaller rounds.
Seven of the 17 MoneyTree sectors experienced increases in dollars invested in the third quarter, including Financial Services, Healthcare Services, Business Products and Services and Retailing. A total of 10 of the MoneyTree sectors showed a decline in Q3 including Media and Entertainment, Semiconductors, Telecommunications and IT Services.
Stage of Development
Venture investment declined across all stages of development in both dollars and deals in the third quarter of 2012. Seed stage investments fell 22 percent in dollars and seven percent in deals with $178 million invested into 67 deals in the third quarter. Early stage investments also declined, falling 21 percent in dollars and seven percent in deals with $1.7 billion going into 395 deals. Seed/Early stage deals accounted for 52 percent of total deal volume in Q3, compared to 53 percent in the second quarter of 2012. The average Seed deal in the third quarter was $2.7 million, down from $3.2 million in Q2. The average Early stage deal was $4.4 million in Q3, down from $5.2 million in the prior quarter.
Expansion stage investment decreased just three percent in dollars and one percent in deals in the third quarter, with $2.6 billion going into 241 deals. Overall, Expansion stage deals accounted for 27 percent of venture deals in the third quarter, and the average Expansion stage deal was $10.8 million, down from $11.1 million in the prior quarter.
Investments in Later stage deals decreased 10 percent in dollars and four percent in deals to $2.0 billion going into 187 rounds in the third quarter. Later stage deals accounted for 21 percent of total deal volume in Q3, similar to Q2 when $2.2 billion went into 195 deals. The average Later stage deal in the third quarter was $10.5 million, which is a slight decline from $11.2 million in the prior quarter.
First-time financing (companies receiving venture capital for the first time) dollars declined eight percent in dollars to $1.0 billion in Q3, but the number of deals increased one percent to 297 deals in the third quarter. First-time financings accounted for 16 percent of all dollars and 33 percent of all deals in the third quarter, compared to 15 percent of all dollars and 32 percent of all deals in the second quarter of 2012.
Companies in the Software, Media & Entertainment, and IT services industries received the most first-time rounds in the third quarter. The Biotechnology sector experienced a continued drop in first-time deal volume to just 15 rounds in the third quarter while Medical Device first time financings remained low at 17 rounds. The average first-time deal in the third quarter was $3.4 million, down slightly from $3.7 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments, garnering 82 percent of the deals.
Information included in this release or related venture capital investment data should be cited in the following way: “The MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters” or “PwC/NVCA MoneyTree™ Report based on data from Thomson Reuters.” After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA or MoneyTree Report. Charts and tables displaying the data are sourced to “PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters.” After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA, MoneyTree Report or MoneyTree.
About the PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
The MoneyTree™ Report measures cash-for-equity investments by the professional venture capital community in private emerging companies in the U.S. It is based on data provided by Thomson Reuters. The survey includes the investment activity of professional venture capital firms with or without a U.S. office, SBICs, venture arms of corporations, institutions, investment banks and similar entities whose primary activity is financial investing. Where there are other participants such as angels, corporations, and governments, in a qualified and verified financing round the entire amount of the round is included. Qualifying transactions include cash investments by these entities either directly or by participation in various forms of private placement. All recipient companies are private, and may have been newly-created or spun-out of existing companies.
The survey excludes debt, buyouts, recapitalizations, secondary purchases, IPOs, investments in public companies such as PIPES (private investments in public entities), investments for which the proceeds are primarily intended for acquisition such as roll-ups, change of ownership, and other forms of private equity that do not involve cash such as services-in-kind and venture leasing.
Investee companies must be domiciled in one of the 50 U.S. states or DC even if substantial portions of their activities are outside the United States.
Data is primarily obtained from a quarterly survey of venture capital practitioners conducted by Thomson Reuters. Information is augmented by other research techniques including other public and private sources. All data is subject to verification with the venture capital firms and/or the investee companies. Only professional independent venture capital firms, institutional venture capital groups, and recognized corporate venture capital groups are included in venture capital industry rankings.
About the National Venture Capital Association
Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. According to a 2011 Global Insight study, venture-backed companies accounted for 12 million jobs and $3.1 trillion in revenue in the United States in 2010. As the voice of the U.S. venture capital community, the National Venture Capital Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community’s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites nearly 400 member firms through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.
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