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Q3 Venture Funding Drops, Science Sectors Hit Hard

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Venture capital (VC) funding for U.S. companies dropped sharply in the third quarter of 2012, with the amount of money invested declining by about a third and number of deals down by almost 10 percent compared to 2011. For the year to date, says Dow Jones VentureSource, a financial industry research service, VC funding totaled $22.8 billion in 2,525 deals, a loss of 15 percent in dollars invested and 3 percent in the number of deals.

In the third quarter of the 2012, U.S. companies gathered $6.9 billion from 820 venture capital deals, a decline of 32 percent in the amount of money invested and a drop of 9 percent compared to the third quarter of 2011. The median amount invested in a typical venture round came to $3.7 million in the third quarter of 2012, only about two-thirds of the $5.7 million median investment amount in the same quarter last year and the lowest since 1997, according to Dow Jones VentureSource.

Investments in most sectors based on scientific discoveries experienced moderate to severe declines compared to last year at this time. The energy and utilities group, primarily renewable energy enterprises, raised $169 million in 19 deals in the third quarter, a decline of 86 percent in investment dollars and 54 percent drop in number of deals. Dow Jones VentureSource says this performance was the worst for the sector since the first quarter of 2006.

Health care companies also raised less money in fewer deals, but in less severe magnitudes. The health care sector overall — comprising biopharmaceuticals, health care services, medical devices and equipment, and medical software and information services — collected $1.6 billion in 171 deals in the third quarter, a 26 percent decline in capital and 15 percent decline in deals compared with the same quarter last year.

The only bright spot in the health care group was biopharmaceutical companies that raised $788 million in 70 deals, an 8 percent increase in capital from the third quarter last year but still a a 9 percent decline in the number of deals.

Information technology (IT) companies continued to attract the greatest interest from investors, bringing in $2.3 billion for 290 deals in the third quarter of 2012, a 2 percent drop in dollars but a 3 percent gain in number of deals compared with the same quarter last year. The IT sector grabbed about one-third of both the total capital invested (33%) and number of deals (35%).

Another glimmer of hope for venture funding is the relatively large proportion of investments in first round deals, representing some four out of 10 (39%) third-quarter investments. “While the industry had a shaky third quarter and the year is off pace from 2011” says  Maryam Haque, senior research analyst for Dow Jones VentureSource, “investors continuing to put their faith into early stage rounds show signs of encouragement.”

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