A Slowdown For Start-Ups

The value of venture capital investing across all industries decreased 31% to $4.8 billion in the third quarter compared to the second quarter of 2010, according to the Money Tree investment report issued by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thompson Reuters.

The report tallied 780 venture deals during the quarter, compared to 962 deals in the second quarter. The authors attribute the decline in large part to the absence of large investments in the cleantech sector. But, the report points out, investment in all industries slowed during the quarter.

A recent report (C&EN, Oct. 11, page 10) by the Cleantech Group on cleantech venture capital investing found that green industries led the information technology and biotechnology sectors in fundraising during the third quarter. In contrast, the Money Tree report concludes that software was the lead industry segment, with biotechnology raising the second highest level of funding and cleantech coming in third.

Biotechnology firms raised $944 million, a decline of 32% compared to the second quarter, the Money Tree report says. The number of biotech deals also dropped, from 152 to 108. But biotech claimed four of the top 10 largest deals during the quarter, while cleantech snagged three.

Despite the drop in investment, the report's authors see "reassuring signs of stability" says Mark Heesen, president of the National Venture Capital Association. "While the burgeoning clean technology industry will experience significant investment volatility as the sector matures, the established software and life sciences sectors continue to benefit from a steady commitment of venture capital dollars being put to work," Heesen observes.

Of all the venture funding investments completed in the third quarter, 35% went to companies in the early stages of development, the report found, a figure that is similar to findings from the second quarter.