U.S. Venture Investment Struggles in Third Quarter

NEW YORK, Oct. 19, 2012 (GLOBE NEWSWIRE) -- U.S.-based companies raised $6.9 billion from 820 venture capital deals during the third quarter of 2012, a 32% drop in capital and a 9% decline in the number of deals compared to the same quarter last year, according to Dow Jones VentureSource.

During the first three quarters of 2012, venture capital investment totaled $22.8 billion for 2,525 deals, a 15% and 3% decline in capital and deals, respectively, compared to the same time frame a year ago.

"Past trends have proven the resilience of the venture capital industry," said Maryam Haque, senior research analyst for Dow Jones VentureSource. "While the industry had a shaky third quarter and the year is off pace from 2011, investors continuing to put their faith into early stage rounds show signs of encouragement."

The median amount invested in a financing round was $3.7 million in the third quarter of 2012, much less than the $5.7 million median from the same quarter last year and the lowest since 1997.

Google Ventures led the pack for investments in U.S.-based companies. The venture arm participated in 21 deals during the third quarter, including eight for software companies and five in the business support services sector.

Late-stage deals comprise majority of invested capital; first rounds account for most deals

Though later-stage deals accounted for 61% of the capital invested in the third quarter, first rounds accounted for the largest proportion of deals, 39%, or 309. However, this corresponded to a 33% decline from the third quarter of 2011, when the same number of first round deals raised $1.9 billion in capital.

Business and financial services decline overall, but bright spot within financial services segment

Investments in business and financial services raised $1.2 billion for 126 deals in the third quarter, a 35% drop in capital and a 25% decline in the number of deals compared to the same quarter last year.

Within the industry, investment in financial institutions and services segment suffered an 11% drop in the number of deals, but saw a 43% increase in capital, largely attributed to Square Inc., a provider of mobile phone payment solutions, which had the largest investment of the quarter. The company garnered $175 million in a later stage round with institutional investors, as well as a $25 million corporate investment from Starbucks Corp.

Consumer services regresses

After a strong second quarter, investment in consumer services regressed and is off pace for the year. Capital raised fell to $1.2 billion for 158 deals, a 38% drop in capital and an 8% decline in deals compared to the same quarter last year.

"Investors have been stingier with their capital than they were last year, partly due to Web start-ups needing less cash to get off the ground," said Zoran Basich, editor of Dow Jones VentureWire. "Especially in an area like consumer services, investors are able to place much smaller bets in the early stages."

IT investments remain strong, particularly in software

Information Technology (IT) continues to attract the largest bulk of investors, accounting for 33% of the investment and 35% of the transactions during the third quarter of this year.

IT companies raised $2.3 billion for 290 deals in the third quarter of 2012, a 2% drop in capital but a 3% increase in deal flow as compared with the same quarter last year. Software continued to comprise the majority of the deals, garnering $1.6 billion in capital from 230 deals, which corresponded to 14% and 10% increases, respectively, from the same time frame last year.

Healthcare struggles, biopharmaceuticals showing signs of relief

Healthcare companies raised $1.6 billion for 171 deals in the third quarter, a 26% decline in capital and a 15% decline in deals compared with the same quarter last year.

Biopharmaceutical companies showed signs of relief after a poor start to the year and was one of the only industries to have a positive quarter. Within the healthcare sector, which also includes healthcare services, medical devices and equipment, and medical software and information services, only biopharmaceuticals saw an increase in investment. Biopharmaceutical companies raised $788 million in 70 deals, an 8% increase in capital from the third quarter last year despite a 9% drop in the number of deals.

Energy continues to slump

Investment in energy and utilities saw the most significant drop among all segments. The segment, which had the worst quarter since the first quarter of 2006, raised $169 million for 19 deals in the third quarter, an 86% decline in capital and a 54% decrease in the number of deals compared to third quarter last year.

Investment in renewable energy continued to account for the greatest number of deals within the energy group, raising $162 million through 12 deals.

For general information about Dow Jones VentureSource, visit http://www.dowjones.com/pr/privatemarkets. For information on Dow Jones VentureSource's research methodology, visit http://bit.ly/VSFAQs

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