VC investing sinks; snaps 3 years of annual growth

But ratio of seed-stage deals to total deals is highest in at least 12 years

Financial trends and news by Bambi Francisco Roizen
January 18, 2013
Short URL:

At the end of 2011, there were rumblings about a startup bubble ready to burst. While no one really heard a big pop, it's been more like a hissing sound of a balloon deflating. 

Investment in US venture-backed companies fell in the fourth quarter of last year as startups raised $6.6 billion from 733 companies, down 20% in capital and 17% in number of deals in the same perios the year prior, according to a newly-released report from Dow Jones. The quarterly amount is the lowest level since the third quarter of 2010.

Overall, venture capital investments tallied $29.7 billion for 3,363 deals, down 15% from 2011 when $35 billion poured into venture capital deals - the highest amount raised since 2001, and the third straight year of year-over-year growth.

The decade between has seen VC investments range from an average of $22 billion up to 2005, and then $29 billion from 2006 to 20012. So last year's range isn't particularly alarming.

Interestingly, the number of seed-stage deals as a percent of total deals was the highest its ever been (at least in the data collected since 2000). The ratio was 11.9% in 2012, up from 11.6% in 2011 and well north of the ratio in the last decade, which was roughly around 5%.

Another interesting tidbit, the stage of investment that saw the biggest drop was in what Dow Jones calls "second round" deals, which are Series B and C. Those deals saw a 27% drop to $4.9 billion in investments. The first round, or Series A rounds only saw a drop of 7% to $5.6 billion. Seed stage deals saw an 18% drop in investments, down to $287 million, while late-stage deals saw a 17% drop to $16.5 billion invested. 

Also corporate investments saw its best year since 2000. Eight corporate deals received $200 million in the fourth quarter, a 32% increase in capital, despite a 50% drop in deals compared to year-ago levels.

(image source: leadingchangegroup)