VC funding rises for first time since 2007

Ronny Kerr · January 21, 2011 · Short URL: https://vator.tv/n/162c

Venture capitalists invested $21.8 billion in 3,277 deals in 2010, up from year before

MoneyTree Did you know that some analysts can tell the economy is doing better just by looking at the rise in traffic congestion? It makes sense: the more people with jobs, the more drivers on the highways. Those of us in the tech industry, however, like to look at a different sort of barometer: venture investments.

So far, things are looking up.

Venture capitalists invested $21.8 billion in 3,277 deals in 2010, an increase of 19 percent in dollars and a 12 percent rise in deals over the prior year, according to a MoneyTree Report released Friday by PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA), based on data from Thomson Reuters.

Last quarter, investments totaled $5.0 billion in 765 deals, a 2 percent increase in dollars but a 3 percent decrease in deals from the third quarter, when $4.9 billion went into 789 deals.

Though it tallies venture funding across a wide variety of sectors, the report says the “greatest opportunities lie” in the Internet, software and clean technology industries.

The stats mark the first time since 2007 that the annual investment level has increased.

Only seed stage investments dropped a bit, seeing a two percent decrease in dollars but a four percent increase in deals: $1.7 billion went to 363 deals for the year. Early stage and expansion stage both did very well, with $5.3 billion in 1,147 deals and $8.5 billion in 1,021 deals, respectively. Early stage saw a 15 percent increase in dollars and a 25 percent increase in deals, while expansion stage saw a 47 percent increase in dollars and a 21 percent increase in deals.

“Continued fundraising and exit market challenges have greatly reduced the probability of investment bubbles in specific sectors as there simply is not enough capital to overinflate any particular market,” said Mark Heesen, president of the NVCA. “The year's increase in first time deals and early stage investment is encouraging as this trend suggests that the venture community is doing more with less. We hope this continues in 2011."

Heesen refers to a big discussion question that arose amongst venture capitalists in 2010: is the tech industry setting itself up for another dot-com-bubble nightmare?

VC sine wave

More specifically, is the current boom in startup investments actually a good thing for the market, or could it end up being a bubble? There are opinions on all sides of the argument, but Heesen just doesn’t think there’s enough funding in any one place to cause disastrous overinflation.

One prominent VC, Fred Wilson of Union Square Ventures, made a related post on his blog today, featuring a piece, pictured here, created by certified financial planner Carl Richards and sent to Wilson by StockTwits co-founder and CEO Howard Lindzon.

Comments Wilson:

I believe we are on the upswing in the web investing space right now. There could well be a fair bit more to go. But we will get to the valley at some point. If you still own whatever you bought on the upswing, don't sell it there. Hold on until the next upswing.

Markets come and go. Good businesses don't.

Will investors heed his advice?