VENTURE CAPITAL INVESTMENT DOLLARS INCREASE MODESTLY WHILE NUMBER OF DEALS DECLINES IN Q1 2011

Clean Technology Investments Top $1.0 Billion, While Later Stage Investment Dollars Surge 54% from Fourth Quarter 2010

Venture capitalists invested $5.9 billion in 736 deals in the first quarter of 2011, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Quarterly investment activity increased 5 percent in terms of dollars but fell 11 percent in number of deals compared to the fourth quarter of 2010 when $5.6 billion was invested in 827 deals.

The quarterly deal count represents the lowest number of deals in a single quarter since the third quarter of 2009. However, the first quarter of 2011 marks the first time in four years that the amount invested in the first quarter has shown an increase over the fourth quarter investment amount.

The Life Sciences sector (biotechnology and medical device industries combined) saw an increase in venture capital (VC) dollars invested during the first quarter, rising 16 percent but falling 9 percent in deal volume from the prior quarter to $1.4 billion going into 164 deals. Driven by several large rounds including the largest deal of the quarter, investments in the Clean Technology sector jumped 26 percent in terms of dollars and 11 percent in the number of deals from the fourth quarter of 2010.

"The first quarter investment total is setting us on a path for a solid level of investing in 2011. While we did see a drop in deal volume, the dollars invested remains strong," noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. "Accordingly, we're seeing an uptick in average deal size, which hit $8.0 million in Q1for the first time since the first quarter of 2007. And, in the first quarter, 14 companies received funding rounds of $50 million or more, with four of those deals worth more than $100 million. We haven't seen this many deals worth $50 million or more in a single quarter since the third quarter of 2001. This is a clear indicator that VCs are seeing innovative companies walk through their doors and that the entrepreneurial spirit of America is alive and well and thriving."

"Despite recent hype about both funding gaps and bubbles within the venture capital industry, the first quarter demonstrates an investment pace that is reasonable, rational and relevant to the long term nature of our business," said Mark Heesen, president of the NVCA. "What we are not seeing this quarter is just as critical as what we are seeing. We are not seeing venture capital dollars flooding any particular sectors, including the Internet or clean technology. And we are not seeing a mass exodus from sectors, such as life sciences, where significant challenges lie. What we are seeing is a commitment to funding companies through the various stages of their lifecycles, even in the later stages when capital needs intensify substantially. What this deliberate and prudent pace of investment lacks in hype, it makes up for in sustainability, and we are very encouraged for the coming year."

Industry Analysis

The Software industry received the highest level of funding for all industries with $1.1 billion invested during the first quarter of 2011. This level of investment represents a 9 percent decrease in dollars compared to the $1.2 billion invested in the fourth quarter. The Software industry also had the most deals completed in Q1 with 187 rounds, although this represented a drop of 21 percent from the 237 rounds completed in the fourth quarter.

In terms of dollars invested, the Biotechnology sector was in third place, rising 6 percent from the prior quarter to $784 million in the first quarter of 2011. The number of deals dropped in the first quarter, falling 17 percent to 85 from 103 in the fourth quarter of 2010. This marks the fewest number of deals in a single quarter for the Biotechnology sector since the second quarter of 2003. Medical Devices and Equipment rebounded in Q1 with a 34 percent increase in dollars while the number of deals remained flat. This sector ranked fourth overall in the first quarter in terms of dollars invested with $602 million going into 79 deals.

The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw a 26 percent increase in dollars over the fourth quarter to $1.0 billion. The number of deals completed in the first quarter increased 11 percent to 69 deals compared with 62 deals in the fourth quarter. The increase in Clean Technology investments was driven by several large rounds, including five of the top 10 deals. The quarter marks the fourth time in history that Clean Technology investing exceeded one billion dollars.

Internet-specific companies also received more than one billion dollars with $1.2 billion going into 171 deals in the first quarter, a 19 percent decrease in dollars and an 18 percent decrease in deals from the fourth quarter of 2010 when $1.5 billion went into 208 deals. 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. Seven of the 17 MoneyTree sectors experienced double-digit increases in dollars in the first quarter, including Semiconductors (63 percent increase), Industrial/Energy (10 percent), and Financial Services (83 percent).

Stage of Development

Seed and Early stage investments increased in the first quarter, rising 11 percent to $1.9 billion. The number of Seed and Early stage deals dropped 14 percent from the prior quarter to 329 deals in the first quarter. Seed/Early stage deals accounted for 45 percent of total deal volume in the first quarter, compared to the fourth quarter when it accounted for 46 percent of all deals. The average Seed deal in the first quarter was $2.2 million, down from $2.8 million in the fourth quarter and is the smallest average deal size for Seed stage investments since the fourth quarter of 2005. The average Early stage deal was $6.4 million in Q1, up from $4.8 million in the prior quarter.

Expansion stage dollars decreased 26 percent in the first quarter, with $1.9 billion going into 211 deals. Overall, Expansion stage deals accounted for 29 percent of venture deals in the first quarter, down from 33 percent in the fourth quarter of 2010. The average Expansion stage deal was $8.9 million, down from $9.4 million in the fourth quarter of 2010. Investments in Later stage deals jumped 54 percent in dollars and 11 percent in deals to $2.1 billion going into 196 rounds. Later stage deals accounted for 27 percent of total deal volume in Q1, compared to 21 percent in Q4 2010 when $1.4 billion went into 176 deals. The average Later stage deal in the first quarter was $10.9 million, which increased significantly from $7.8 million in the prior quarter and represents the largest average deal size for Later stage companies since the second quarter of 2004.

First-Time Financings

First-time financing (companies receiving venture capital for the first time) dollars increased 12 percent but number of deals declined by 9 percent with $987 million going into 221 deals. Firsttime financings accounted for 17 percent of all dollars and 30 percent of all deals in the first quarter, compared to 16 percent of all dollars and 29 percent of all deals in the fourth quarter of 2010.

Companies in the Software, Media & Entertainment, and IT Services industries received the highest level of first-time dollars. The average first-time deal in the first quarter was $4.5 million, up from $3.6 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments, garnering 61 percent of the dollars and 75 percent of the deals, but fell short of fourth quarter percentages when they accounted for 65 percent of the dollars and 77 percent of the deals.

National results

Regional results

Top 10 Deals for Q1 2011