Venture Funding Increased 22% in 2011

By Donald Zuhn --

Last month, 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 2011.  The report, which is prepared by NVCA and PriceWaterhouseCoopers using data from Thomson Reuters, indicates that venture capitalists invested $28.4 billion in 3,673 deals in 2011, which constituted a 22% increase in dollars and a 4% increase in deals as compared with 2010.  The amount of dollars invested in 2011 constituted the third highest annual investment total in the past ten years.

The annual increases in dollars and deals for 2011 were achieved despite a 10% decrease in dollars and 11% decrease in deals in the fourth quarter as compared with the third quarter.  In particular, funding dropped from $7.3 billion in the third quarter to $6.6 billion in the fourth quarter and the number of deals dropped from 953 in the third quarter to 844 in the fourth quarter.

Funding in the biotech sector in 2011 matched venture funding overall, with the biotech sector receiving $4.7 billion -- a 22% increase over 2010 funding.  In terms of dollars invested, the biotech industry placed second among the industries tracked by the NVCA (the software industry took the top spot, collecting $6.7 billion in 2011).  Biotech deals in 2011 were up 9% to 446.  For the fourth quarter, biotech funding was up 10% to $1.3 billion and the number of deals rose 6% to 111 as compared with the third quarter.  Overall, thirteen of the seventeen sectors tracked by the NVCA saw increases in dollars invested in 2011.

Tracy Lefteroff, the global managing partner of the venture capital practice at PricewaterhouseCoopers noted that while "venture capital investing in 2011 exceeded 2010 levels and ranks in the top three years for VC investing in the past decade," venture capitalists "are acting prudently and not chasing excessive valuations."  She predicted that "despite the increase in investing, we're unlikely to see these sectors overheat like we saw in the 1999 to 2000 era."  NVCA president Mark Heesen pointed out that "[w]hile venture capital investment grew in 2011, it is important to note that deal volume growth did not keep pace with dollar growth."  He noted that in some industries, including life sciences, venture capitalists being forced "to fuel their existing portfolios longer and at greater investment levels than in the past," which explained the lower deal volume.

For additional information regarding this and other related topics, please see:

• "Life Sciences Venture Funding Drops in Third Quarter," October 27, 2011
• "Life Sciences Venture Funding up 37% in Second Quarter," August 1, 2011
• "VentureSource Reports 35% Increase in 1Q Venture Funding," April 26, 2011
• "NVCA Reports Modest Gains in First Quarter Venture Funding," April 19, 2011

• "NVCA Reports 31% Drop in Venture Funding for Third Quarter," October 17, 2010

• "NVCA Reports 34% Increase in Venture Funding for Second Quarter," July 22, 2010

• "NVCA Report Shows First Quarter Drop in Venture Funding," April 20, 2010

• "Biotech/Pharma Financing Improving, R&D Spending Up," August 31, 2009
• "NVCA Study Shows Increase in Third Quarter Venture Funding," October 23, 2009

• "First Quarter Venture Capital Funding at 12-Year Low," April 23, 2009

• "NVCA Study Shows Decline in 2008 Investment; BIO Study Predicts Biotech Rebound in 2009," February 16, 2009

• "NVCA Predicts Another Slow Year for Venture-backed Businesses in 2009," December 18, 2008