Outlook good for VC investments in the U.S.

Dow Jones VentureSource report agrees with MoneyTree: deals are up, dollars are up

Right before the weekend, we published the results of a MoneyTree report on the recent state of venture capital investments in the U.S. With an overwhelmingly positive outlook, the report proclaimed that the annual investment level had increased for the first time since 2007.
 
A just released Dow Jones VentureSource report mostly mirrors the MoneyTree report with some slightly different figures.
 
In 2010, venture capitalists invested $26.2 billion in 2,799 deals, a six percent increase in deals and an 11 percent increase in capital versus the year before, when 2,636 deals raised $23.6 billion, according to Dow Jones VentureSource.

The last quarter of 2010 saw 735 deals raise $7.6 billion, a six percent decrease in deals but a six percent increase in capital from the fourth quarter of 2009, which saw $7.2 billion invested in 782 deals.

While exact numbers between Dow Jones and MoneyTree actually conflict a bit, what’s important is that both mark proportional changes in deals and dollar amounts. In general, more capital is flowing, but the number of completed deals is not rising as quickly. That said, Dow Jones says the median deal size for 2010 was $4.4 million, down from the $5 million median in 2009.

As usual, the Healthcare and IT industries accounted for more than half of venture investments in 2010, though investments in the former fell seven percent to $7.4 billion for 702 deals. IT did a little better, generating $7.2 billion for 889 deals in 2010, up slightly. The industries that drove the biggest growth were Consumer Services, which jumped 67 percent to $4.4 billion for 483 deals, and Business and Financial Services, which increased eight percent to $3.3 billion for 447 deals.

“Venture capitalists are pursuing strategies more akin to growth equity investing than traditional venture capital with some of their maturing Web companies,” said Scott Austin, editor of Dow Jones VentureWire. “Companies like Groupon, Zynga and Facebook are generating hundreds of millions of dollars in revenue so VCs don’t need to exit quickly. Instead, they are growing these companies through acquisitions of technology and talent as well as business development, which can require sizable cash infusions.”

As perhaps reflected by the massive interest in those big three companies, there is one thing that has not changed: VC preference for late-stage deals. In 2010, late-stage accounted for 40 percent of deals and 61 percent of total capital raised.