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VC in the US: Is it doing better or worse than you think?

December 11, 2008

Money in the US?

Money in the US?

After Amie’s blog on the state of VC in Canada and Andy’s blog on the state of biotech VC in Europe, I wondered what was happening with venture funding in the US. Reading through PricewaterhouseCoopers and the National Venture Capital Association’s recent MoneyTree Survey for the third quarter of 2008, I found some of the results surprising.

First, the good news: for the first time ever, clean tech investments in the US cracked the $1 billion US mark for a single quarter, and biotech investments were also up 10% nationwide with $2.2 billion going into 207 deals.

But overall there was a decline in venture capital investments nationwide by seven per cent from the second quarter, with $7.1 billion going into 907 deals compared with $7.7 billion into 1,033 deals. Investments in Silicon Valley were down 11%, with $2.77 billion going into 297 deals compared with $3.1 billion going into 318 deals in the previous quarter.

Silicon Valley companies attracted the lion’s share of investments with 38.9% of all funding overall (slightly down from 40.5% the quarter before). New England regained its second place status with 12% ($834 million) pushing Southern California (LA/Orange County) down to third place with 11% of all venture funding ($751 million). New York took fourth place with eight per cent of the nationwide total venture capital investment ($578 million). It is interesting to note that 50% of all venture capital investments took place in California alone.

Where did the funding go? Both nationally and in Silicon Valley, 32.3%t of it was dedicated to the biomedical and health sector. The next largest sector for VC was software (18.8% nationally and 26.5% in Silicon Valley).

Analysts expect a dip in venture funding over the next several quarters, but they do not expect VC funding to dry up completely. An important statistic to watch in the future is the number and value of first-time deals because if investors increasingly can’t cash out of their investments through M & A’s or IPOs, they may become more and more hesitant to invest in early-stage deals. According to the MoneyTree Survey, $1.5 billion went into 259 first-time deals, which is a decline of 12% in dollar value and 20% in number of deals.

One thing is for certain: We’ll be waiting with bated breath to see what happens to VC funding in the fourth quarter of 2008. In the meantime, here is some advice for startups seeking venture capital.

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Keri Damen @ MaRS

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Keri builds and manages live and online education for entrepreneurs at MaRS. She's worked in education and multimedia and for organizations dedicated to supporting entrepreneurship in Europe and Canada.

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