What cash crunch? VCs bet it all on tech in Q3

Third quarter consumer Web investments are double what they were last year

Did somebody say “cash crunch”?  If the well is drying up, you wouldn’t know it from the looks of the latest figures from Dow Jones VentureSource, which put third quarter VC funding for consumer Web companies at $1.3 billion.  That’s more than double the amount raised in the same quarter last year.  The new stats put total VC funding for consumer Internet companies at $3.8 billion so far.  At this rate, the sector is expected to exceed the $4.2 billion raised in 2010.

What’s particularly interesting about this quarter is that $1 billion of the $1.3 billion invested went to later stage companies, even though later stage deals only accounted for 30% of all third quarter deals.

But this wouldn’t be the first time later stage companies have exceeded $1 billion in VC fundraising in a single quarter.  In fact, later stage companies have raised over $1 billion almost every quarter since Q4 2010, when they raised $2.4 billion following a fairly flat year.  That was followed by $1.2 billion in Q1 2011, $458 million in Q2, and finally $1 billion in Q3. 

This could be bad news for younger companies.

“If investors continue focusing on later-stage companies that would likely have exited years ago had market conditions been better, the hundreds of young Web start-ups that raised financing in the last two years will face intense competition for second rounds,” said Scott Austin, editor of Dow Jones VentureWire, in a statement.

Nonetheless, the stats do seem to fly in the face of the Wall Street Journal’s recent article claiming that Web startups have run into a cash crunch.  In truth, the money is there—VCs are still investing.  It’s just going disproportionately to later stage companies than early stage companies.

In the third quarter, seed and first round companies raised a combined total of $175 million, while second round companies raised $120 million.  This has been the case more or less every quarter for the last two years, give or take a few million.  The difference is that within the last year, later stage rounds have taken off to dizzying heights. 

Three of the five largest deals in the third quarter were for later stage companies, including Twitter, which raised $400 million; TrueCar, which raised $200 million; and Blekko, which raised $30 million.  Meanwhile, Just Fabulous raised a first round of $33 million and BloomSpot raised a second round of $35 million.

Cash crunch?  I don’t see it.

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