CONSUMER INTERNET COMPANIES FUEL GROWTH IN EUROPEAN VENTURE INVESTMENT

Consumer Services Make Strong Gains; Energy and Healthcare Fall; Early-Stage Investing Picks Up

Venture-backed companies based in Europe raised €1.3 billion through 273 venture capital deals during the second quarter of 2012, a 14% increase in capital raised but a 20% decline in deals from the same period last year, according to Dow Jones VentureSource.

“Deal activity fell but investment grew as the lacklustre exit environment kept companies private longer. As companies age, they often need larger financing rounds to continue, which boosts the amount invested,” said Anne Malterre, European research manager, Dow Jones VentureSource. “We saw deep declines in renewable energy, in part due to the U.K.’s feed-in tariff cuts, and in healthcare. There were some bright spots, however, as VCs increased the percentage of deals done for early-stage companies and interest in online start-ups remained strong.”

During the second quarter, 38 European venture-backed companies were acquired, a 34% drop in deals from the same period last year, and three companies went public, which was half the number of initial public offerings (IPOs) recorded in the second quarter of 2011.

Through the first six months of this year, venture capital investment totaled €2.2 billion for 550 deals, a 7% decline in capital and 10% decline in deals from the year-ago period.

The industry trends in the second quarter largely reflect the recently released U.S. investment figures, with Internet and software companies faring well but significant declines recorded in the healthcare and energy industries.

Investment in Consumer Internet Companies Remains Strong

Consumer services saw the greatest gains of any industry in the second quarter, raising €493 million through 72 deals, more than double the €239 million raised during the same period last year despite only one more deal being completed. Nearly two-thirds of the capital collected by the consumer services industry went to the consumer information services sector, which includes social media, online entertainment and search companies.

Energy & Utilities Drops by Two-Thirds

Energy and utilities companies raised €42 million through nine deals in the second quarter, a fall of 67% in investment and 63% in deal activity. Investment in renewable companies echoed the sector as a whole, falling to €35 million for seven deals, a 70% decline in investment and 65% decline in deals.

Healthcare Slips

Investment in healthcare companies fell to €237 million for 50 deals, a 24% decline in investment and 33% decline in deals. Investment in biopharmaceuticals increased 7% to €196 million for 31 deals, while investment in the medical devices sector fell 68% to €33 million for 17 deals.

Software Investment Makes Strong Gains

The information technology (IT) industry raised €215 million for 73 deals during the second quarter, an 18% decline in investment and a 17% drop in deal activity compared with the same period last year. The software sector – traditionally the most popular investment area in IT – fared well, raising €136 million through 54 deals, a 24% increase in investment despite an 8% drop in deals.

Deal Flow Falls for Business & Financial Services

Business and financial services companies raised €144 million for 35 deals during the second quarter, a 58% increase in investment despite a 27% decline in deals. The business support services sector, which is driven by interest in marketing, advertising and data management companies, raised €108 million through 26 deals during the second quarter, double the amount invested in the same period last year despite a 28% drop in deal flow.

Early-Stage Deals Capture a Larger Slice of Deal Flow

Sixty-two percent of deals in the second quarter went to early-stage companies, up from 58% in the same period last year. Early-stage companies also accounted for 32% of capital invested, on par with the second quarter of 2011. Second-round deals accounted for 19% of deal flow and 18% of capital invested, down from 25% and 28%, respectively, in the year-ago period. Later-stage deals accounted for 19% of deals, up from 17% a year earlier, and 49% of capital invested, a significant increase from the year-ago period when 39% of capital went to later-stage companies.

Country Perspectives

* The U.K. consolidated its position as the favored destination for venture capital investment in Europe during the second quarter. Companies in the U.K. raised €504 million in 71 deals, representing a 75% increase in investment from the same period last year despite a 15% decline in deals.
* Germany moved to second place as companies raised €185 million for 51 deals, a 47% jump in investment and a 31% increase in deal flow compared with the same period last year.
* France placed third as companies raised €169 million for 65 deals, a 26% decline in investment and a 17% drop in deals from the same period last year.

Venture Capitalists’ Confidence Falls in Second Quarter

The Silicon Valley Venture Capitalist Confidence Index® for the second quarter of 2012, based on a June 2012 survey of 30 San Francisco Bay Area venture capitalists, registered 3.47 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence.) This quarter’s index fell back from the previous quarter’s sharp rise in confidence and reading of 3.79.

This is the 34th consecutive quarterly survey and research report and, thus, provides unique quantitative and qualitative trend data and analysis on the confidence of Silicon Valley VCs in the future high-growth entrepreneurial environment. Mark Cannice, professor of entrepreneurship and innovation with the University of San Francisco (USF) School of Management, authors the research study each quarter.

In the new report, Cannice states, “Macro issues such as the fate of Europe, regulatory constraints in the life science arena, and disappointment in the Facebook IPO overshadowed a steady confidence in the positive technology trends (e.g. cloud, mobile, social) that are centered in the Valley.” For example, one of the study’s respondents, Elton Sherwin of Ridgewood Capital, asserted that as start-ups conduct business internationally more now than in years past, this slow down overseas (in Europe and China) will affect start-up firms more than previously. With regard to the life sciences, Gerard van Hamel Platerink of Accuitive Medical Ventures indicated, “Continuing regulatory challenges along with a tough financing environment is causing investors to focus on existing deals rather than new investments.” Meanwhile, Venky Ganesan of Globespan Capital Partners pointed out, “The Facebook IPO might have flopped, but the disruptive trends around mobile, cloud, and social remain very much intact.”

Professor Cannice concluded the report stating, “Despite the macroeconomic and regulatory constraints that ruled the day in Q2, the projection of a more welcoming exit market, and continued focus on technological, market, and business model innovation points to a brighter outcome for the balance of 2012.”

In related research on China Venture Capitalist confidence, Cannice and his co-author, Ling Ding, found confidence among VCs in China plummeted to a historic low in Q2 due in part to macro economic uncertainty and continued high valuations.

Berkery Noyes’ first half 2012 report: Information Industry M&A trends

Private Equity Information Industry Merger & Acquisition Trends For First Half 2012

Financially sponsored transactions specifically within the Software portion of the Information Industry, after remaining flat throughout 2011, increased 15 percent during the last six months. Three of the top ten Software deals in first half 2012 were backed by private equity firms, together accounting for 21 percent of financially sponsored transaction value in the Information Industry.

Access the free four-page report here.

Media and Marketing Industry Merger & Acquisition Trends For First Half 2012

Marketing was the most active industry segment for first half 2012, accounting for 262 transactions and surpassing Internet Media in transaction volume during the last twelve months. Internet Media activity declined two percent compared to second half 2011 but remained 19 percent above its second half 2010 levels.

Access the free four-page report here.

Online and Mobile Merger & Acquisition Trends For First Half 2012

Although SaaS/ASP was the largest segment with 250 transactions, E-Commerce was the fastest growing segment throughout the last 12 months. M&A volume in social media marketing, examined as a subset of the E-Marketing & Search segment, increased fourfold compared to first half 2011 and 30 percent relative to the prior half year period.

Access the free four-page report here.

Software Industry Merger & Acquisition Trends For First Half 2012

M&A in the Consumer Software segment increased 29 percent compared to first half 2011, making it the fastest growing segment on a half-to-half year basis. Transaction volume for software that is used to analyze and manage customer data, a sub-category of the Business Software segment, increased 40 percent between 2010 and 2011. The sector remained nearly constant during the last six months, which was a 33 percent improvement over first half 2010.

Access the free four-page report here.

Education Industry Merger & Acquisition Trends For First Half 2012

Despite the constant overall deal flow, the Corporate and Professional Training segment experienced a 32 percent increase in transaction volume. Vista Equity Partners was the most active related buyer, acquiring Silverchair Learning Systems and Essential Learning. CAE’s acquisition of Oxford Aviation Academy, a subsidiary of STAR Capital Partners Limited, was the largest transaction in the segment and had an acquisition price of $315 million.

Financial Technology and Information Industry Merger & Acquisition Trends For First Half 2012

The median revenue multiple improved from 2.3x to 2.7x over the last six months, while the median EBITDA multiple increased from 11.4x to 16.1. The Payments segment experienced a 30 percent volume increase compared to first half 2011. Within the Payments segment, the most active associated buyer during the last two and a half years was VeriFone, a provider of point-of-sale electronic payments solutions, with six transactions.

Healthcare/Pharma Information and Technology Industry Merger & Acquisition Trends For First Half 2012

Total transaction volume in first half 2012 increased by 28 percent over second half 2011. In terms of transaction type, 27 percent of industry deals were financed by private equity, venture capital, and other investment firms. This represented a seven percent increase compared to second half 2011.

IMPROVING TRENDS FOR LIFE SCIENCE INVESTMENT

Silicon Valley Bank, financial partner to technology and life science companies and their investors worldwide, released "Continued Rebound: Trends in Life Science M&A." This report examines the merger and acquisition behavior of private, venture capital-backed biotech and medical device companies.

Based on an analysis of private merger or acquisition transactions of US venture capital-backed companies since 2005, Silicon Valley Bank found a rebound in "Big Exits" among life science companies. Big Exits were defined as acquisitions where the upfront payment totaled in excess of $50 million for device companies and $75 million for biotech companies: Silicon Valley Bank recorded35 Big Exits in 2011: seven-year high, 12.5 billion invested in life science: a seven-year high and Increased upfront deal values

Indications receiving the largest investments since 2005: Biotech: Oncology, CNS, Anti-Infectives; Device: Diagnostics, Orthopedics, Cardiovascular

Sectors with the highest multiples, versus dollars deployed since 2005: Biotech: Respiratory, Cardiovascular, Oncology, Device: Surgical, Vascular, Tools

The full report, "Continued Rebound: Trends in Life Science M&A", is available here. A tandem report, examining the current and emerging trends in life science investments, "First Mover Advantage: The Case for Investing in Life Science," is also available.

"Our data shows positive momentum in exits in the life science industry," said Jonathan Norris, Managing Director with SVB Capital's Venture Capital Relationship Management team and author of the report. "In 2011 we saw the most VC-backed big exits, generating the largest amount of liquidity in biotech and device, since we started tracking this data in 2005. While this does not correct the poor overall returns for the last decade, these dynamics position life science as an attractive investment opportunity now and in the future."

Silicon Valley Bank works with 50 percent of life science-focused VC firms and life science companies nationwide, specializing in companies in biotech and medical device fields.

VENTURE CAPITAL INVESTMENTS EXPERIENCE DOUBLE-DIGIT INCREASES IN DOLLARS AND DEAL VOLUME IN Q2 2012

Internet-Specific and Early Stage Investing Jumps; Life Sciences Investing Falls
Venture capitalists invested $7.0 billion in 898 deals in the second 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 climbed 17 percent in terms of dollars and 11 percent in the number of deals compared to the first quarter of 2012 when $6.0 billion was invested in 809 deals.
The number of Early stage deals reached the highest quarterly total since Q1 2001, with $2.1 billion going into 410 deals, an 18 percent increase in dollars and a 28 percent increase in deals from the prior quarter.
The Internet-specific sector also saw increases during the second quarter, rising 22 percent in dollars and 31 percent in deals from the prior quarter to $1.8 billion going into 261 deals in Q2.
The Life Sciences sector (Biotechnology and Medical Devices), however, experienced a decline in funding in the second quarter, dropping 9 percent in dollars and 6 percent in deals from the prior quarter to $1.4 billion going into 174 deals in Q2.
“The concentration of venture capital dollars in the hands of fewer firms will increasingly dictate the flow of investment,” said Mark Heesen, president of the NVCA. “Currently, this translates into more funding for IT start-ups and less capital available for life sciences and clean technology. We hope to see this investment mix rebalance over time as the start-up ecosystem is better served with more diversity, not less. Additionally, we continue to watch the early stage and first time financing numbers as they are critical to the U.S. innovation pipeline. We are encouraged that these numbers were stronger this quarter and hope that this signals an ongoing commitment on behalf of venture firms to make these longer term, breakthrough investments.”
“If funding levels in the second half of the year remain consistent with the first half of the year, VC investing in 2012 will fall short of the nearly $30 billion invested in 2011 but will exceed the $23 billion invested in 2010,” remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. “Software and Internet companies continue to be attractive industries for VCs since most of these companies tend to be capital efficient and don’t require large amounts of capital to operate. VCs also find the potential for profitable liquidity events to be attractive for these companies. On the contrary, given the regulatory challenges currently impacting the Life Sciences industry and the amount of capital required to fund these companies, it’s no surprise that investments in this industry have declined for the fourth consecutive quarter.”
Industry Analysis
The Software industry received the highest level of funding for all industries with $2.3 billion invested during the second quarter of 2012, which is the highest investment total for the sector since the second quarter of 2001. This level of investment represents a 38 percent increase in dollars, compared to $1.7 billion invested in the first quarter. The Software industry also had the most deals completed in Q2 with 290 rounds, which represents a 16 percent increase from the 251 rounds completed in the first quarter of 2012.
Life Sciences investing declined for the fourth consecutive quarter, most notably in the Biotechnology sector where $697 million went into 90 deals, representing the lowest quarterly total for the industry since the first quarter of 2003. The Medical Devices and Equipment industry received the third highest investment amount in Q2 with $700 million going into 84 deals, an 11 percent increase in deals while the dollars remained relatively flat compared to the prior quarter. Investments in the Life Sciences sector (Biotechnology and Medical Devices) fell 9 percent in dollars and 6 percent in deals, and accounted for 20 percent of all VC dollars invested for the quarter, down from 29 percent in 2011.
Internet-specific companies received the second highest level of investment in more than a decade with $1.8 billion going into 261 deals, a 22 percent increase in dollars and a 31 percent increase in deals from the first quarter when $1.5 billion went into 199 deals. Investment in Internet companies has surpassed the $1 billion dollar mark each quarter for the past two years, and two of the top 10 deals for the quarter were in the Internet-specific category. Internetspecific’ 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 an 8 percent increase in dollars but experienced a 28 percent decrease in deal volume with $1.0 billion going into 55 deals during the second quarter compared to $962 million going into 76 deals in the prior quarter. The dollar increase in Q2 was driven by several large rounds as evidenced by four of the top 10 deals of the quarter, including the top three overall, falling within the clean technology category.
Eleven of the 17 MoneyTree sectors experienced increases in dollars invested in the second quarter, including Semiconductors (63 percent increase), Media & Entertainment (62 percent increase), Telecommunications (44 percent increase), Industrial/Energy (15 percent increase) and IT Services (12 percent increase). Additionally, 11 of the 17 sectors also experienced increases in the number of deals.
Stage of Development
Seed stage investments rose 33 percent in dollars and 15 percent in deals with $199 million invested into 63 deals in the second quarter. Early stage investments also rose, climbing 18 percent in dollars and 28 percent in deals with $2.1 billion going into 410 deals, the largest quarterly deal total since the first quarter of 2001. Seed/Early stage deals accounted for 53 percent of total deal volume in Q2, compared to 46 percent in the first quarter of 2012. The average Seed deal in the second quarter was $3.2 million, up from $2.7 million in the Q1.
The average Early stage deal was $5.2 million in Q2, down from $5.6 million in the prior quarter. Expansion stage dollars increased 49 percent in the second quarter, with $2.6 billion going into 232 deals. Overall, Expansion stage deals accounted for 26 percent of venture deals in the second quarter, a slight decrease from 27 percent in the first quarter of 2012. The average Expansion stage deal was $11.3 million, down from $8.1 million in the prior quarter.
Investments in Later stage deals decreased 10 percent in dollars and 11 percent in deals to $2.1 billion going into 193 rounds in the second quarter. Later stage deals accounted for 21 percent of total deal volume in Q2, compared to 27 percent in Q1 when $2.3 billion went into 216 deals. The average Later stage deal in the second quarter was $10.8 million, which is a slight uptick from $10.7 million in the prior quarter.
First-Time Financings
First-time financing (companies receiving venture capital for the first time) dollars increased 24 percent to $1.1 billion in Q2, and the number of deals rose 27 percent to 282 deals in the second quarter. First-time financings accounted for 15 percent of all dollars and 31 percent of all deals in the second quarter, compared to 14 percent of all dollars and 27 percent of all deals in the first quarter of 2012. Companies in the Software, Media & Entertainment, and IT services industries received the most first-time rounds in the second quarter. The Life Sciences sector experienced a slight drop, falling 3 percent in dollars and 4 percent in deals during the second quarter to $130 million going into 27 companies. The average first-time deal in the second quarter was $3.7 million, down slightly from $3.8 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments, garnering 78 percent of the deals.

U.S. VENTURE INVESTMENT DECLINES IN SECOND QUARTER

Dow Jones VentureSource: Internet and IT Investment Remains Steady, Biopharmaceuticals and Energy Investment Falls; Early-Stage Investing Picks Up

U.S.-based companies raised $8.1 billion through 863 venture capital deals during the second quarter of 2012, a 9% decline in capital and 3% decline in deals from the same period last year, according to Dow Jones VentureSource.

Through the first six months of the year, venture capital investment totaled $15.3 billion for 1,595 deals, a 7% decline in capital and 5% decline in deals from the year-ago period.

“IT and Internet investment has been steady but interest in capital-intense industries like healthcare and energy is fading,” said Brendan Hughes, director of information analysis for Dow Jones VentureSource. “The unpredictable environment for IPOs – the traditional exit for biopharmaceuticals companies – has entrepreneurs and investors struggling to find new business models. In energy, investors are favoring smaller technology plays rather than big investments in solar or biofuels.”

The median amount invested in a financing round was $5 million in the second quarter of 2012, on par with the same period last year.

Investment in Consumer Internet Companies Remains Strong

The share-price declines of Groupon, Facebook and Zynga after high-profile public debuts have not deterred investors from committing capital to young Internet companies. Investment in consumer Internet companies, which includes social media, entertainment and shopping aggregators, rose to $967 million raised for 134 deals during the second quarter, a 27% increase in capital and 14% increase in deals from the same period last year.

“Alongside the headline-grabbing IPO flops there have been several Internet IPOs that performed well following their public debuts. The successful IPOs of Yelp, Brightcove and LinkedIn are helping fuel the continued interest and investment in this sector,” said Zoran Basich, editor of Dow Jones VentureWire.

Software Investments Keep IT Healthy

Information technology (IT) companies raised $2.4 billion for 286 deals in the second quarter, a slight change from the same period last year when $2.5 billion was put into 296 deals. Software continued to be the primary driver of deals and investment, as 218 deals raised $1.6 billion, a 2% decline in deals and a 2% increase in capital from the second quarter of last year.

Health IT Bucks Downward Trend In Healthcare Investment

In the second quarter, healthcare companies raised $1.5 billion for 161 deals, a 33% decline in investment and 15% decline in deals from the same period last year.

Investment in biopharmaceuticals companies fell significantly as 54 deals raised $570 million in the second quarter, a 22% decline in deals and 43% decline in capital invested. Also during the second quarter, medical device companies raised $653 million for 67 deals, a 33% decline in investment and 22% decline in deals.

The only bright spot in the healthcare industry was health IT, which is benefiting from interest in technologies that manage health information and data. Health IT companies raised $268 million for 29 deals in the second quarter, a 33% increase in capital raised and 45% increase in deals.

VCs Pull the Plug on Energy Deals

The second quarter the worst for investment in energy and utilities start-ups since the first quarter of 2009. During the second quarter, $293 million was raised for 25 deals, a 56% decline in capital and 32% decline in deals from the same period last year.

As usual, renewable energy companies accounted for most of the deals, raising $211 million through 18 deals.

Investment in Enterprise Start-Ups Rises

Deals for business and financial services start-ups fell 3% but capital invested rose 14% as 139 deals raised $1.7 billion in the second quarter. Investment in this area is largely driven by interest in data management, marketing and advertising companies.

Early-Stage Deals Capture a Larger Slice of Deal Flow, Capital

Early-stage deals captured 45% percent of deal flow and 23% of capital invested during the second quarter, up from the second quarter of last year when these deals accounted for 43% of deals and 19% of capital raised. Second rounds accounted for 18% of deals and 17% of capital, down from the year-ago period when these rounds accounted for 20% of deals and 22% of capital invested. Later-stage deals accounted for 35% of the quarter’s deals and 59% of total capital raised, a change from last year when later-stage rounds captured 34% of deals and 55% of the capital invested.

U.S. AND EUROPEAN PRIVATE EQUITY FUND-RAISING HAVE BEST FIRST HALF SINCE 2008

Limited partners showed strong support for U.S. and European private equity funds in the second quarter, helping both regions achieve the best first half for fund-raising since 2008, according to Dow Jones LP Source.

In the first half of 2012, U.S. private equity funds raised $86 billion for 235 funds, a 27% increase in capital raised despite a 4% decline in fund closings from the first half of 2011. In the second quarter alone, U.S. funds raised $44 billion.

European private equity funds raised $37.3 billion for 79 funds in the first half of 2012, a 39% increase in capital but a 10% decline in fund closings compared to the same period last year. In the second quarter, European funds raised $14.2 billion.

“Overall, private equity firmsproduced a record level of distributions in 2011 and that’s paid off in the form of increased commitment volume to the asset class,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “Limited partners also had a lot of choices given that many veteran firms returned to the fund-raising trail this year.”

Industry-Focused Funds, Venture Fund-Raising On The Rise In The U.S.

U.S. buyout and corporate finance funds raised $59 billion for 108 funds in the first half, a 30% increase in capital from the year-ago period. Within this segment, LPs are gravitating toward funds focused on a specific industry such as financial services, energy or technology. Twenty-three industry-focused funds raised $13.8 billion during the first half, the strongest first half on record for these funds. Dow Jones LP Source has been tracking private equity fund-raising since 2000.

Also within the buyout and corporate finance segment, 44 buyout and acquisition funds raised $24.3 billion, a 31% increase in capital. Diversified private equity funds had their best first half on record as 18 funds raised $12.7 billion.

More money flowed into venture capital in the first half. Eighty-two venture capital funds raised $13 billion in the first half, a 31% increase in capital from the same period a year ago. For a detailed report on venture fund-raising, visit http://www.dowjones.com/pressroom/releases/2012/07092012-VCFund-0051.asp.

Mezzanine funds raised $7.2 billion for 17 funds in the first half, more than double the capital raised in the year-ago period despite two fewer fund closings.

Investment in secondary funds rose 33% to $4.7 billion for 11 funds.

Funds-of-funds bucked the upward trend as capital commitments to the segment fell 65% to $2.1 billion for 17 funds.

LPs Temper Investment Pace In Europe After Record First Quarter

Limited partners in European funds tempered their investment pace in the second quarter after committing $23.1 billion in the first quarter, which was the best first quarter on record. While the $14.2 billion committed in the second quarter was a much more moderate investment pace, it nearly matched the $14.6 billion raised during the same period last year.

In Europe, 33 buyout and corporate finance funds raised $23.9 billion in the first half, an 8% increase in capital. Within this segment, buyout and acquisition funds saw a 41% decline in capital as 16 funds collected $10.2 billion. Diversified private equity funds made up for the loss by raising $10.1 billion for 7 funds, more than 10 times the capital collected in the same period last year for the same number of funds.

Twenty-seven European venture funds raised $2.3 billion, a 26% increase in capital raised for the same number of fund closings compared to the first half of last year. For a detailed report on venture fund-raising, visit http://www.dowjones.com/pressroom/releases/2012/07092012-VCFund-0051.asp.

Investment in secondary funds more than quadrupled as eight funds raised $8 billion. Funds-of-funds also saw a significant increase in investment as eight funds raised $2.8 billion, up from five funds that raised $269 million in the same period last year.

Mezzanine funds did not fare well in the first half as two funds raised $224 million, down from $1 billion raised for three funds during the first half of last year.

Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately to provide an accurate view of the fund-raising environment.

For more information about Dow Jones Private Equity and Venture Capital products, visit http://www.dowjones.com/pr/privatemarkets .

VENTURE CAPITAL FUND-RAISING ON TRACK TO SURPASS 2011

At the half-year mark, U.S. and European venture capital funds are on track to surpass 2011’s fund-raising totals. Through the first six months of the year, 82 U.S. venture funds raised $13 billion while 27 European venture funds raised $2.3 billion, a 31% and 26% increase, respectively, in capital raised compared to the first half of 2011, according to Dow Jones LP Source.

“Despite the industry’s lackluster returns in recent years, there’s still lots of interest in funds that have good track records or are well-situated to take advantage of broad consumer technology trends,” said Zoran Basich, editor of Dow Jones VentureWire.

“We’re seeing that reflected in the healthy fund-raising numbers.”

Early-Stage Fund-Raising More Than Doubles In The U.S.

The number of U.S. venture funds that raised capital rose 12% to 82 funds in the first half of 2012 from 73 funds in the first half of 2011.

Multi-stage funds proved popular with limited partners, who put so much into the funds that the half-year total matches the fund-raising total for all of 2011. LPs put $7.7 billion into 26 multi-stage funds during the first half, a 35% increase in capital committed from the first half of 2011.

Forty-three early-stage funds raised $3.1 billion, more than double the $1.3 billion raised for 40 funds during the same period last year.

Twelve late-stage venture funds raised $2.1 billion, a 28% decline in fund-raising from the first half of 2011.

European Venture Capital Fund-Raising Rises 26%

Twenty-seven European venture funds held closings during the first half, matching the total from the year-ago period.

In Europe, early-stage funds attracted most of the capital, raising $1.5 billion across 17 funds, a 34% increase in capital committed from the same period last year.

The $689 million raised by nine multi-stage funds was nearly on par with the $681 million raised for the same number of funds during the first half of last year.

One debenture fund raised $79 million during the first half. Later-stage funds did not hold any closings, which is not uncommon in Europe.

VENTURE CAPITAL FIRMS RAISED $5.9 BILLION IN Q2 2012

Five Largest Funds Accounted for Majority of Dollars Raised in Quarter

New York, July 9, 2012 - Thirty-eight U.S. venture capital funds raised $5.9 billion in the second quarter of 2012, according to Thomson Reuters and the National Venture Capital Association (NVCA). This level marks a 12 percent increase by dollar commitments and a 22 percent decline by number of funds compared to the first quarter of 2012, which saw 49 funds raise $5.3 billion during the period. The top five funds accounted for nearly 80 percent of total fundraising this quarter as the number of funds raising money during the quarter fell to its lowest levels since the third quarter of 2009, when 38 venture capital funds also saw new capital commitments. Venture Capital fundraising for the first half of 2012 totaled $11.2 billion, a 10 percent increase by dollar commitments compared to the first half of 2011 ($10.2 billion) and an 8 percent decline by number of funds.

Fundraising by Venture Capital Funds
Year/Quarter	Number of Funds	Venture Capital ($M)
2008	212	25,179.1
2009	163	16,335.8
2010	173	13,559.2
2011	182	18,575.1
2012	82	11,173.5
2Q'10	49	2,100.8
3Q'10	56	3,688.4
4Q'10	50	3,735.2
1Q'11	47	7,556.7
2Q'11	45	2,609.4
3Q'11	65	2,140.5
4Q'11	53	6,268.5
1Q'12	49	5,264.4
2Q'12	38	5,909.1

Source: Thomson Reuters and National Venture Capital Association

"As the number of venture capital firms continues to contract, we are beginning to see a clear bar bell forming with several large funds weighing in heavily on one side of the spectrum and a multitude of smaller funds on the other side," said Mark Heesen, president of the NVCA. "This polarity translates into a heavier concentration of dollars in the hands of fewer large firms, narrowing the overall field of venture funds from which to choose for entrepreneurs and limited partners alike. As the venture industry bifurcates further, successful LPs and portfolio CEOs are going to have to search for quality firms on both sides of the barbell."

There were 28 follow-on funds and 10 new funds raised in the second quarter of 2012, a ratio of 2.8-to-1 of follow-on to new funds. The largest new fund reporting commitments during the second quarter of 2012 was from San Francisco, California-based Mithril, L.P. which raised $402.0 million for the firm's inaugural fund. A "new" fund is defined as the first fund at a newly established firm, although the general partners of that firm may have previous experience investing in venture capital. The 10 new funds raised during the second quarter of 2012 mark the slowest three-month period for capital raising from new funds since the first quarter of 2009, when 10 new funds were raised.

VC Funds: New vs. Follow-On
	No. of New	No. of Follow-on	Total
2008	51	161	212
2009	41	122	163
2010	57	116	173
2011	57	125	182
2012	20	62	82
2Q'10	19	30	49
3Q'10	20	36	56
4Q'10	18	32	50
1Q'11	14	33	47
2Q'11	15	30	45
3Q'11	22	43	65
4Q'11	14	39	53
1Q'12	12	37	49
2Q'12	10	28	38

Source: Thomson Reuters and National Venture Capital Association

Second quarter 2012 venture capital fundraising was lead by Menlo Park, California-based New Enterprise Associated 14, L.P. which raised nearly $2.1 billion, and Institutional Venture Partners XIV, L.P. which raised $1.0 billion during the quarter.

Methodology
The Thomson Reuters/National Venture Capital Association sample includes U.S.-based venture capital funds. Classifications are based on the headquarter location of the fund, not the location of venture capital firm. The sample excludes fund of funds.

Effective November 1, 2010, Thomson Reuters venture capital fund data has been updated in order to provide more consistent and relevant categories for searching and reporting. As a result of these changes, there may be shifts in historical fundraising statistics as a result of movements of funds between primary market & nation samples and/or between fund stage categories.

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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 its more than 400 members through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.

IPO MARKET STALLS IN SECOND QUARTER, M&A Value Increases 55%

Venture-backed initial public offering (IPO) activity marked its strongest quarter on record, by dollars raised, bolstered by the record-breaking offering from Facebook Inc in May. By number of deals, 11 venture-backed companies went public in the United States during the second quarter of 2012, a decline of 42 percent from the first quarter of this year and down 50 percent from the second quarter of 2011, according to the Exit Poll report by Thomson Reuters and the National Venture Capital Association (NVCA). For the second quarter of 2012, 102 venture-backed M&A deals were reported, 27 of which had an aggregate deal value of $5.5 billion, a 61 percent increase from the first quarter of 2012.

“There’s no question that the psychological fallout from the Facebook IPO, coupled with economic uncertainty in Europe, put a chill on the public markets for most of the second quarter,” said Mark Heesen, president of NVCA. “However, as the world was fixated on a single offering, many companies were simultaneously registering confidentially to go public under the new JOBS Act provision, building an IPO pipeline that started to flow in the final days of June. This backlog, coupled with an ongoing healthy acquisitions market, suggests that 2012 can still be strong for venture-backed

IPO Activity Overview

There were 11 venture-backed IPOs valued at $17.1 billion in the second quarter of 2012, which, powered by Facebook Inc’s $16.0 billion offering, marked the largest quarter for dollars raised by venture-backed companies on record. By number of deals, quarterly volume fell 42 percent from the first quarter of this year and 50 percent from the second quarter of 2011.

Nine of the 11 IPOs of the quarter were IT-related IPOs representing 82 percent of the total issues for in the quarter. By location, all of the quarter’s 11 IPOs were by U.S.-based companies with eight coming from the state of California, two from Massachusetts and one from Maryland.

In the largest IPO of the quarter and the largest venture-backed IPO on record, Facebook Inc (FB), an online social network based in Menlo Park, California, raised $16.0 billion and began trading on NASDAQ on May 18th.

For the second quarter of 2012, eight companies listed on the NASDAQ stock exchange and three companies listed on the New York Stock Exchange.
Nine of the 11 companies brought to market this quarter are currently trading above their offering price. There are 44 venture-backed companies currently filed for an initial public offering with the SEC. This figure does not include confidential registrations filed under the JOBS Act.

Mergers and Acquisitions Overview

As of June 29th, 102 venture-backed M&A deals were reported for the second quarter of 2012, 27 of which had an aggregate deal value of $5.5 billion. The average disclosed deal value was $205.2 million, a 55 percent increase from the first quarter of 2012.

The information technology sector led the venture-backed M&A landscape with 77 of the 102 deals of the quarter and had a disclosed total dollar value of $2.6 billion. This was an increase of 24 percent from the first quarter of 2012. Within this sector, Computer Software and Services and Internet Specific deals accounted for the bulk of the targets with 36 and 23 transactions, respectively, across these sector subsets. Q2

Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 52 percent of the total disclosed transactions during second quarter of 2012, down slightly from the first quarter of this year. Venture-backed M&A deals returning less than the amount invested accounted for just 11 percent of the quarterly total.

IPO Market Wobbles; M&A Picks Up

A five-week initial public offering (IPO) drought broke late last week as the second quarter ended with 11 IPOs of U.S. venture-backed companies, nine fewer than the first quarter. Mergers and acquisitions (M&As) of venture-backed companies fared better in the second quarter as deal activity picked up slightly over the first quarter reversing a downward trend in deals that had been seen over the previous six months, according to Dow Jones VentureSource.

Eleven U.S. venture-backed companies raised $7.7 billion through IPOs in the second quarter, a drop in offerings from the same period last year when 14 IPOs raised $1.7 billion.

During the same time, 110 U.S. venture-backed companies were acquired, a slight uptick from the 98 M&As in the first quarter of 2012 but a 6% decline in deal activity compared to the second quarter of 2011.

"Dreams of a stable public market that appeared to be becoming reality in the first quarter were dashed by the worsening economic situation in Europe and Facebook's underwhelming and problematic public debut," said Jessica Canning, global research director for Dow Jones VentureSource. "The silver lining this quarter may be M&A as deals are up slightly over the first quarter and have a solid start for the third quarter when Microsoft's acquisition of Yammer is expected to close."

Silicon Valley Companies Dominate IPOs

Start-ups based in Silicon Valley accounted for 72% of venture IPOs in the second quarter, a much larger proportion than the first quarter when they accounted for 35% of IPOs.

Venture companies took a median of $89 million and 8.5 years to reach an IPO, which represents a 14% drop in capital raised and a decrease in time from 8.7 years during the same period a year ago.

Currently, 44 U.S. venture-backed companies are in IPO registration. Eleven of those companies registered in the second quarter.

Software M&A Picks Up, Pharma Falls

Information technology (IT) was the most active industry for M&A as 47 deals raised $5.3 billion, a 9% increase in deals and 40% increase in capital raised. Within IT, software companies were the primary target for corporate buyers who acquired 36 software start-ups, an uptick from the 28 deals completed during the same period a year ago.

With 21 deals, consumer services was the second most active industry for acquisitions. It edged out healthcare and business and financial services by three and two deals respectively. All three of these industries, however, saw a decline in M&A deals from the second quarter of last year.

The healthcare industry saw the most dramatic drop in deal activity as the number of acquisitions fell from 25 in the second quarter of 2011 to 18 in the most recent quarter. The drop was largely driven by the biopharmaceuticals segment which saw deals fall from 16 to 5.

"Promising technology companies are still being courted by corporate buyers, but in healthcare, regulatory uncertainty is making acquirers wary," said Zoran Basich, editor of Dow Jones VentureWire.

During the second quarter, 110 mergers, acquisitions and buyouts raised $13.6 billion, a 6% decrease in deals and a 4% increase in capital raised from the same period last year. The median price paid for a company rose to $100 million from $64 million in the second quarter of last year.

To reach an M&A or buyout, it took companies a median of $20 million in venture financing, 2% more than in the second quarter of 2011, and a median of 5.1 years, less time than the 5.7-year median a year earlier, to build the company.