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U.S. VC Investments Up for 2011, Flat for Science Companies

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Venture capital (VC) investors in the U.S. increased in 2011 compared to 2010, both in terms of numbers of deals and amount of money invested. However, the fourth quarter of the year was an unusually slow period, according to Dow Jones VentureSource that compiled the data, and consumer Web companies appeared to benefit from the added funding more than science-based companies.

In 2011, VCs invested $32.6 billion in 3,209 deals, an increase of 10 percent in capital raised and 6 percent increase in number of deals from 2010. The median amount invested per financing deal also gained 16 percent to $5 million in 2011. In the fourth quarter of the year however — normally an active period for financing — VC investors put $7.4 billion into 803 deals, down from the third quarter of the year.

Funding for health care enterprises stayed about the same in 2011 as in 2010, with VCs investing $8.4 billion in 738 deals in 2011. In 2010, VCs made 747 deals for a total of $8.3 billion. Biopharmaceuticals had the industry’s most financing activity with 302 deals raising $3.9 billion, a decline of 6 percent in the number of deals and the amount of funding staying about the same as in 2010. Medical device companies registered 290 deals raising $3.3 billion, a 3 percent decline in the number of deals, but a 27 percent increase in investment amount.

Information technology (IT) companies had somewhat more deals and financing amounts in 2011, with $7.9 billion raised in 1,004 deals, compared to $7.7 billion in 967 deals in 2010. Software companies benefited the most from these investments, recording 743 deals raising $4.6 billion in 2011. The number of deals in electronics and computer hardware companies fell 13 percent to 110 and deals for semiconductor enterprises fell 33 percent to 50. Electronics and hardware companies and semiconductors enterprises raised $1.5 billion and $598 million in 2011 respectively.

The medical IT sector where health care and IT overlap, however, collected $633 million for 86 deals in 2011, registering a 26 percent increase in deal activity and 22 percent increase in funding amount. Dow Jones VentureSource attributes these gains to a greater interest in electronic health records, Web and mobile applications, and information management solutions.

Energy and utilities companies raised $2.9 billion in 134 deals, as investment amounts stayed flat in 2011, but deal activity rose 14 percent. As seen in recent years, renewable energy companies claimed most of this investment, with 110 deals raising $2.7 billion.

The big winners among VC investments in 2011 were consumer information services companies, with well-known names like Twitter, Zynga, and LivingSocial driving $5.2 billion in 452 deals, a 23 percent increase in capital collected and 14 percent increase in deal activity from the previous year. About seven in 10 investment dollars in this sector (72%) went to later-stage deals into companies approaching their initial stock offerings or buyouts. But more than half of the deals (57%) went into seed and first-round investments, indicating a continuing interest in these enterprises.

The median amount invested in a first round for a Web start-up shrank by a third (33%) to $2 million, while the median amount invested in a later-stage round jumped 43 percent to $10 million. “Venture capitalists still have a strong appetite for early-stage Web start-ups, but more mature companies may be swallowing some of the available cash,” says Zoran Basich, editor of Dow Jones VentureWire.

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