Q2 2009 VC Funding Overview
Venture Capital Investing Increases 61%. Is the Worst Over?
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Venture Capital Investing Increases 61% in Q2 2009. Is the Worst Over?
Despite the steady beat of news predicting the demise and destruction of the venture capital asset class, could the reports of venture capital’s death be greatly exaggerated? Q2 2009 offers some hope as evidenced by robust quarter over quarter investing in the United States by venture capital firms. With the numbers tallied, Q2 2009 saw 61% more money flowing from venture capital investors to entrepreneurs over the prior quarter. Yes, we acknowledge this growth (1) comes off multi‐year lows in Q1, (2) that a single data point doesn’t make for a trend and hence a recovery and (3) that investment levels are approaching what they were in prior quarters of 2008. But, as the highlights below demonstrate, the performance is noteworthy. Q2 2009 highlights Dollars invested WAY up ‐ Deals totaling nearly $5.329 billion in investment in Q2 2009. This represents a nearly 61% increase over the $3.314 billion of investment we tracked in Q1 2009. The idea that investment levels might inch up slowly from Q1 2009 levels appears to have been disproven. Whether this quarter is the start of an upward trend, a blip up on the way to further retrenchment or the creation of a new investment level plateau remains to be seen. Broad geographic participation (but California dominates) ‐ 34 different US states housed companies receiving venture money. California dominated based on number of deals and dollars invested with Massachusetts, Washington, New York and Colorado rounding out the top five. Money IS available for early stage startups – Despite conventional wisdom that venture firms would invest only to fortify existing portfolio companies, the quarter saw healthy levels of early stage investment in Seed and Series A rounds accounting for 35% of the number of deals. For early stage entrepreneurs with compelling businesses, VC checkbooks are not frozen. Healthcare startups looking good – While there was broad‐based industry participation with funding going to 10 different sectors and 55 different industries, the healthcare sector saw the greatest level of funding garnering 37% of investment dollars. Silicon Valley venture capital firms are the most active – Several hundred venture firms participated in deals in the quarter. Similar to the company geographic breakdown, nine of the ten most active venture firms in the quarter call The Valley home.
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After the discussion of our research methodology, we dive into four areas of the data specifically: (1) geography (2) industry/sector (3) funding round type and (4) investors. Research Methodology Because there are often many numbers floating around about venture capital activity in the quarter, we’ve tried to detail the rules we use to pull our numbers together so you understand our process and also have a better understanding and insight into the numbers you see in the following pages. What is included? • • • • Only fundings in the USA with participation from venture capital firms For follow‐on investments, only the portion of the investment made in the quarter – not the total round/series is included. Amount that has closed – not the intended size of the round Only verifiable fundings for the quarter either confirmed by (1) regulatory filings (2) direct confirmation with firm or investor or (3) press release.
What is not included? • • • • • Angel investment by angel groups or angel individuals (unless there was participation from a venture capital firm as well) Private equity firm investments Private placements aka PIPEs, Private Investment in Public Equities Debt issued to emerging, startup companies Grants by government or state bodies to emerging, startup companies
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Start‐ups across 34 different states saw funding in Q2, with California companies taking the lead in both number of deals and total investment. About 40% of the quarter’s total number of deals and 43% of total dollars invested went to California. Overall, the top five states accounted for an overwhelming majority of the nation’s funding activity representing 72% of total dollars invested and 69% of total deals.
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The Internet, Healthcare, and Technology sectors led Q2 2009 deals representing almost 75% of the nation’s total number of deals. On an investment dollars basis, Healthcare companies which saw several sizable deals raised the most money relative to companies in any other sector, collecting almost 37% of total national funding for the quarter. Technology and Internet companies represented 34% of funding in the quarter.
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Within Healthcare, Medical Devices & Equipment and the Pharmaceutical industries accounted for nearly two‐thirds of Q2 investment.
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Q2 drew in a high volume of Seed and Series A deals collectively making up 35% of total number of deals. This is noteworthy given the commonly held view that that venture firms were fortifying existing portfolio companies in favor of investing in new early stage deals.
Given the relatively small size of seed and series A investments, they represented 18% of total funding in the quarter.
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While several hundred venture firms particpated in deals in the quarter, the top ten active investors in Q2 2009 in terms of the number of deals that the VC participated in, either as lead investor or co‐investor, is given below. Menlo Park‐based Kleiner Perkins Caufield & Byers took first amongst all VCs with the most investments for the quarter. In line with California dominating the investment landscape, Silicon Valley VCs dominated the list, with nine out of the ten most active investors. Investor Breakdown – Top 10 Active Investors (Q2 2009) Investor Kleiner Perkins Caufield & Byers DAG Ventures Draper Fisher Jurvetson Venrock Accel Partners Canaan Partners New Enterprise Associates Polaris Venture Partners Benchmark Capital Sequoia Capital True Ventures
City Menlo Park Palo Alto Menlo Park Palo Alto Palo Alto Menlo Park Menlo Park Waltham Menlo Park Menlo Park Palo Alto
State CA CA CA CA CA CA CA MA CA CA CA