WASHINGTON, D.C. – 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.
VC investments in technology remains solid as life sciences and clean tech continue to adjust to market conditions. However, 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.
California ranked the highest among states for the number of deals (347) and total amount ($3,313,893,200).
North Carolina came in 16th among other states with 12 deals in the third quarter totaling $54,383,100 as compared to the 13 deals reported the same quarter last year totaling $48,905,800. Most of the investments made in the third quarter in North Carolina were in the biotechnology sector with five of the 12 deals, followed by software (4), and IT services (2), and semiconductors.
Investment in Biotechnology nationwide increased by 64 percent in terms of dollars and 22 percent in terms of deals with $1.2 billion going into 116 companies in the third quarter. 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.
The software industry received the highest level of funding for all industries with $2.1 billion invested into 304 deals last quarter, 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 1 percent increase in deal volume from the second quarter when $2.4 billion was invested in 300 deals.
The top North Carolina deal last quarter went to Durham-based Argo Therapeutics, Inc. with about $14.3 million going into the development of immunotherapy treatments for cancer. Other companies receiving 3Q funding in North Carolina included Aerial BioPharma; DealCloud; KnowledgeTree, Liquidia Technologies; Lumena Pharmaceuticals; Netsertive; PlotWatt; PureLux; SAManage, Ltd.; Vascular Pharmaceuticals; and Windsor Circle, Inc.
The southeast region as a whole has seen nearly $600 million invested in companies this year with approximately 241,734,500 reported for the region in the third quarter. That is 22,682,700 lower than that the same quarter last year.
“The third quarter numbers tell a story consistent with investment themes we have been seeing throughout 2012,” added 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 fund-raising levels will push investment dollars down as the industry recognizes it cannot put out more money than it takes in.”
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.
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 7 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 7 percent in deals with $1.7 billion going into 395 deals. Expansion stage investment decreased just three percent in dollars and 1 percent in deals in the third quarter, with $2.6 billion going into 241 deals. Investments in later stage deals decreased 10 percent in dollars and 4 percent in deals to $2.0 billion going into 187 rounds in the third quarter.
“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.”
First-time financing (companies receiving venture capital for the first time) dollars declined 8 percent in dollars to $1.0 billion in third quarter, but the number of deals increased 1 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.
The PricewaterhouseCoopers/National Venture Capital Association 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.
