VCs invest 20% more funds into fewer deals

U.S. fares well, but other countries see dramatic decreases in investments and deal activity

Are venture capitalists starting to chase deals? It appears that might be the case as more capital went into fewer deals in the first quarter.

Investments are up while deals are down, according to a report from Dow Jones VentureSource, which found that venture capitalists invested $9.8 billion into 967 deals for companies around the world during the first quarter of 2011, representing a 20% increase in investment but a 7% decline in the number of deals from the same period in 2010.

By comparison, in Q1 2010, companies around the world received $8.2 billion in venture capital across 1,038 deals.

The U.S. seemed to fare the best out of the countries tracked, which also include Europe, Canada, Israel, mainland China, and India. Healthcare, renewable energy, and the information technology sectors accounted for the bulk of the $6.4 billion that was funneled into U.S. companies across 661 deals in the first quarter of 2011, which represents an increase of 35% in investment and 5% in deals compared to Q1 2010.

But other regions didn’t do as well. Europe saw record low deal activity in the first quarter, with VCs investing $1.5 billion across 182 deals. While this marks a 17% increase in investment, it also marks a 35% drop in deal activity from the year before. Indeed, VentureSource noted that it’s the lowest quarterly deal count since VentureSource started tracking the region in 2000.

China, Israel, and Canada all saw declines in both investment and deals in the first quarter, with Israel taking the most dramatic hit. VCs invested $60 million across 13 deals for Israeli companies, representing a 53% decrease in capital invested and a 24% drop in deal activity from the previous year.

“In an increasingly globalized industry, capital can move quickly between regions to follow the most promising start-ups,” said Jessica Canning, global research director for Dow Jones VentureSource, in a statement. “However, any shocks to the local liquidity markets will quickly drive capital away or cause investors to put everything on hold. Given the uneven nature of IPOs and acquisitions right now, I believe we’re seeing a bit of both.”

While Europe saw an increase in investment and a drop in deal activity, India was the reverse, with investors pouring $232 million into 26 deals in India, marking a 30% decrease in investment and a 30% increase in deal activity.

Image source: DowJones.com