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U.S. Venture Deals, Dollars Decline in Q1 2012

New York Stock Exchange entrance (A. Kotok)

(A. Kotok)

Companies in the U.S. raised less money in fewer venture capital deals during the first three months of 2012 compared to the same period last year, according to data compiled by Dow Jones VentureSource. Some science-based sectors fared better than others during this period, while venture capital (VC) investors generally showed more interest this year in early-stage deals.

Overall, U.S. companies raised $6.3 billion in 717 deals during the first quarter of 2012 an 18 percent decline in dollars and 9 percent decline in deals from the the first quarter of 2011. The decline in investment activity was evident in the biopharmaceutical sector, which raised $523 million in 53 deals during Q1 2012, a drop of 46 percent in capital and 31 percent in the number of deals compared to 2011.

Other health care companies had more success raising funds in Q1. Medical device companies raised $748 million in 83 deals, a 2 percent decline in investment dollars but a 14 percent increase in the number of deals. VentureSource says about half (51%) of the medical device deals were made in later-stage investment rounds.

Health care information technology (IT) companies also had a good first quarter in investments. Health care IT companies raised $102 million in 18 deals during Q1 of 2012, a 75 percent gain in funds raised, while the number of deals remained about the same as in 2011.

Other IT fields showed a mixed investment pattern in the first quarter of 2012. IT companies overall raised $2 billion in 257 deals, a 14 percent increase in investment dollars and a 2 percent increase in deals. Software was particularly active, with $1.3 billion raised in 196 deals, a 61 percent increase in dollars and a 6 percent increase in deals.

Consumer internet companies, however, suffered large declines in investments compared to the first quarter of 2011. This sector — which covers social media, entertainment, and shopping aggregators — collected $375 million in 88 deals during Q1, a drop of 76 percent in investment volume and 17 percent in number of deals. VentureSource notes the consumer Internet sector for the first quarter of 2011 included two very large closings, for Zynga and LivingSocial, which raised $870 million combined.

Energy and utility companies had a good first quarter of 2012 in fund raising. During Q1, companies in this sector raised $943 million in 29 deals, a 44 percent increase in capital raised in about the same number of deals as in the first quarter of 2011. Renewable energy companies accounted for 23 of those 29  deals, raising $513 million.

VCs showed more interest in early-stage investments in the first quarter of 2012 than last year at this time. Seed- and first-round transactions accounted for 44 percent of the deals and 21 percent of the capital invested during the first quarter, the same proportion of deals as the corresponding period last year but an increase from 16 percent of the capital raised last year.

Second rounds accounted for 19 percent of deals in the first quarter of 2012, about the same as the same period last year, and 17 percent of capital invested, also about the same as the 18 percent during Q1 2011. Later-stage deals accounted for 35 percent of the first quarter’s transactions, the same as last year, and 61 percent of total capital raised, down somewhat from last year when later-stage rounds collected 64 percent of the capital invested.

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