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2012 VC Funding Strong in Software, Soft Elsewhere: The Top 10 Deals

Venture capital investments receded nationwide in 2012, with double-digit decreases in funding for new cleantech and life sciences companies weighing upon the $26.5 billion that was invested in 3,698 companies nationwide. It marked a 10 percent slide from the $29.5 billion that VCs invested in 2011, with the deal count declining 6 percent (from 3,937), according to the MoneyTree Report.

The industry report, based on data from Thomson Reuters, is being released today by PricewaterhouseCoopers and the National Venture Capital Association (NVCA).

U.S. venture funding already was lagging behind the pace set in 2011, and the fourth quarter was no exception. The $6.4 billion invested during the last three months was down 13 percent from the same quarter in 2011, when the MoneyTree survey counted $7.4 billion. The number of investments remained the same, however, with 968 deals counted in both quarters. The MoneyTree report shows that the $6.4 billion invested during the quarter also was 3 percent lower than the $6.6 billion VCs invested nationwide during the previous quarter, while the 968 deals marked a 5 percent rise over the 919 deals.

The extensive data covered in the MoneyTree survey more or less confirms trends we saw earlier this week in the quick snapshot from CB Insights, which tracked a 7.5 percent decline in 2012 VC investments nationwide. MoneyTree also provides lists of the top 10 deals for the fourth quarter and full year, which I’ve included below.

“Uncertainty played a huge factor, I think, in the decision-making in 2012 [in terms] of whether to invest or not,” said Tracy Lefteroff, who leads PricewaterhouseCoopers’ national practice for U.S. pharmaceuticals and life sciences companies. “We had the election, taxes, government policy in spending, just the general environment of the stock markets and equity markets. As well as trouble with things in the life sciences, such as the regulatory environment and things along those lines.”

The software boom continued during the quarter, in contrast to most other sectors. Software also was the largest sector for venture investments in 2012, with $8.3 billion in 1,266 deals for the year. The total marked a 10 percent increase in capital deployed and an 8 percent increase in the number of deals over 2011, Lefteroff said. It also was the highest level of VC funding in software since 2001.

Biotechnology was the second largest category for venture investments in 2012, with $4.1 billion going into 466 deals. While the deal count was roughly the same in 2011, Lefteroff said the amount of capital invested in biotech startups in 2012 had declined 15 percent. VC investments in medical devices totaled $2.4 billion in 313 deals in 2012, representing a 13 percent drop in dollars and a 15 percent decline in the number of deals from the previous year. Much of the decline in both categories occurred in first-time financings, which saw the lowest number of deals since 1995, Lefteroff said.

In the cleantech sector, the MoneyTree Report counted $3.3 billion invested in 267 deals in 2012. It was a 28 percent decrease from the $4.6 billion and a 23 percent drop from the 348 cleantech deals in 2011.

Last year also marked the fifth straight year of the VC paradox, with venture firms investing more capital in 2012 than they raised. “Based on what venture capital firms have raised over the past few years, it’s likely that we’re going to see fewer and fewer dollars invested in coming years,” said Mark Heesen, president of the NVCA.

Heesen also noted that VC investments in early stage deals were down sharply—a collapse that CB Insights highlighted earlier this week. But Heesen said there’s a lot more seed stage activity going on than the numbers show. Heesen said venture firms often withhold information about their initial investments in stealthy startups. Individual investors also have flocked into seed-stage deals, which might have some VCs holding back for later rounds.

John Backus, a managing partner with New Atlantic Ventures in Reston, VA, agreed, saying, “Early stage investing continues at really healthy levels. I think what we’re seeing reflects a very healthy, angel, incubator, and accelerator market.”

Looking forward, Backus said his firm has focused its investments in six general areas that offer prospects for substantial growth: cybersecurity; online education; e-commerce; mobile; advertising technology; and what he calls “the business of healthcare.”

In his outlook for 2013, however, Backus predicted that venture funding for startups will likely remain tight: “I worry about global economic issues that still need to be sorted out. Businesses don’t like uncertainty, and there still is a lot of uncertainty out there in the world, not only in America, but across the globe.”

Jim Healy, a general partner with Sofinnova Ventures in Menlo Park, said his firm generally has been focused on investing in a handful of specialized fields, including ophthalmology, dermatology, cancer, and orphan diseases. While the overall environment for life sciences investing remains challenging, Healy said, “We do see the macro [economic] trend as being very positive, and we look at the healthcare and biopharmaceutical markets as being both large and stable”—and likely to benefit from the healthcare needs of the aging U.S. population.

Based on MoneyTree data, the top 10 U.S. venture deals during the fourth quarter were:

Intarcia Therapeutics, Hayward, CA; $155.9 million.

IO Data Centers, Phoenix, AZ; $90 million.

Zulily, Seattle, WA; $85 million.

BrightSource Energy, Oakland, CA; $83.6 million.

Valeritas, Bridgewater, NJ; $75.6 million.

Ultragenyx Pharmaceutical, Novato, CA; $75 million.

Cloudera, Palo Alto, CA; $64.7 million.

23andMe, Mountain View, CA; $58 million.

Calxeda, Austin, TX; $55 million.

Street Response Laboratories, New York, NY; $53 million.
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Based on the MoneyTree Data, the top 10 U.S. deals of 2012 were:

SquareTrade, San Francisco: $238 million.

Square, San Francisco; $200 million.

Intarcia Therapeutics, Hayward, CA; $155.9 million.

Fisker Automotive, Anaheim, CA; $147.6 million.

Sapphire Energy, San Diego, CA; $139 million.

Fisker Automotive, Anaheim, CA; $129.7 million.

Box, Los Altos, CA; $125 million.

Drilling Info, Austin, TX; $116.8 million.

Harvest Power, Waltham, MA; $112 million.

Elevance Renewable Sciences, Woodridge, IL; $104 million.

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