VC Investment Rises in Q2 Driven by Corporates, Fundraising Down

Venture dollar investment rose 12% to $6.7 billion and deal count rose 2% to 913 in Q2 versus Q1 2013, with the Software, Biotech and IT Services sectors taking in the bulk of the investment money, according to the latest PWC Money Tree Report. However, VC investments declined by 9% versus a year ago, from $7.34 billion in Q1 2012.  Additionally, the National Venture Capital Association reported that U.S. venture capital fundraising was down 33% in the 2nd quarter, to $2.9 billion, versus Q1, and was down 54% from a year ago.

According to a Washington Post blog on innovation, the latest numbers could reflect a shift in the VC industry away from big investments in Tech companies that focus on social media and towards mobile, cleantech or health care. The blog also argues that the year-over-year decline reflects some fundamental shifts in how startups are raising capital – that Tech companies don’t need as much money as they used to because of advances in technology itself – including the Cloud and the consumerization of IT. Outsourcing has also made it easier to start a company and find customers without having to raise millions of dollars from venture capitalists. Often times, start-ups use crowdfunding or simply sell themselves to a bigger company and completely forgo VC dollars in the process.

Early Stage Deals on the Rise, Biotech and Internet-Related Deals Spike

According to the PwC report, companies receiving investment for the first time and early stage deals jumped in Q2, indicating that innovative ideas are getting funded. Early stage investments rose 63 percent in dollars and 18 percent in deal count to $2.5 billion going into 480 deals. First-time financing increased 24 percent to $1.1 billion going into 302 companies in Q2, a 10 percent increase in the number of deals versus Q1.  Software captured the largest share of first-time investments.

“In many ways it feels like the late 1990’s with information technology driving venture investment and significantly outpacing other sectors when it comes to level of activity and momentum,” said Mark Heesen, president of the NVCA. He points out that clean energy venture investment in Q2 continues to favor more capital efficient models rather than capital intensive investments.

Venture dollar investments in the Biotechnology (+41%) and Internet-Specific (+39%) sectors experienced major growth in Q2 versus the prior quarter. And the Industrial/Energy sector increased 64 percent in the quarter, which was primarily due to a single large deal.

Cleantech Venture Capital Declines, Again

Cleantech venture dollar investment dropped 6% and deal count dropped 31% to $364 million going into 43 deals in Q2. The deal count in Q2 is the lowest since the fourth quarter of 2006 when only 38 cleantech companies received an investment and marks the sixth consecutive quarter of declining cleantech sector investment levels. The cleantech sector, as defined by Moneytree, includes alternative energy, pollution and recycling, power supplies and conservation.

Corporate Venture Capital Deals Increase

A large share of the venture investment dollar growth in Q2 was driven by an increase in corporate venture capital, which rose to $909 million in the second quarter from $473 million in Q1.  Corporate venture capital comprised 14% of total venture investment in Q2 (vs. only 8% of the total in Q1.)  And 107 corporate venture firms made an investment during the first half of 2013, compared to 148 corporate venture firms making an investment during 2012.  Corporate venture firms made 890 total investments during the first half of 2013.

During the first half of 2013, there were 74 total cleantech related corporate venture capital deals, which comprised 20% of the total cleantech venture deals during that time period. Corporate venture firms invested $577 million into cleantech, which comprised 14% of the total venture dollars ($4B) going into in cleantech. Of the 890 total corporate venture capital deals during the first half of 2013, 8.3% of them were cleantech deals.

For more information about the PwC MoneyTree report, click here


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