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.