By Donald Zuhn --
On Friday, the National Venture Capital Association (NVCA), a trade association representing the U.S. venture capital industry, released the results of its MoneyTree Report on venture funding for the third quarter of 2010. The NVCA quarterly study, which the group conducts with PriceWaterhouseCoopers using data from Thomson Reuters, indicates that venture capitalists invested $4.8 billion in 780 deals during the third quarter, which constituted a 31% drop in dollars and a 19% drop in deals as compared with the second quarter of 2010. The NVCA noted that virtually every sector, including biotech, slowed during the third quarter. Looking for a silver lining, the trade group also noted that continued investment in first-time deals as opposed to follow-on rounds suggested that investors had "confidence in today's entrepreneurs and innovators."
The third quarter drop follows a similar drop in dollars and deals between the second and first quarters of the year (see "NVCA Reports 34% Increase in Venture Funding for Second Quarter"). However, after adjusting its second quarter numbers, the NVCA determined that the second quarter drop was not as bad as initially thought, with the amount invested in the second quarter rising from $6.5 billion to $6.9 billion and the number of deals increasing from 906 to 962.
While funding in the Life Sciences sector (biotechnology and medical devices) slowed in the third quarter, the report indicates that biotech captured significant funding. In particular, the biotech industry received $944 million via 108 deals, which marked a 32% decrease in dollars and a 29% drop in deals as compared to the second quarter when $1.4 billion went into 152 deals. In addition, the Life Sciences sector's string of consecutive quarters as the top sector in terms of dollars invested was halted at five, with the Software sector taking over the top spot.
While acknowledging the decline in third quarter funding, NVCA president Mark Heesen contended that there were still "reassuring signs of stability in the third quarter numbers." Among these signs were the "steady commitment of venture capital dollars being put to work within meaningful pockets of innovation" in the Life Sciences sector, medical advances in the biotechnology and medical device fields, and the fact that first time financings held strong, "evidencing that venture investors are making a steady stream of new bets and filling the innovation pipeline, driving our industry and our future economy."
Of the seventeen sectors analyzed for the report, the NVCA noted that fourteen experienced dollar declines in the third quarter -- only the Healthcare Services (157%), IT Services (15%) and Telecommunications (3%) sectors saw an increase in funding during the third quarter.