Venture-capital funding for startups rose dramatically in 2011, with software and biotechnology the big winners.
Venture firms poured $28.4 billion into 3,673 U.S. deals in 2011, a rise of 22 percent in dollars and a 4 percent increase in the number of deals compared with 2010, according to a MoneyTree Report done by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.
The software industry had the biggest investment, with dollars increasing by 38 percent over 2010 to $6.7 billion in 2011. That money was invested in 1,004 deals, a 7 percent rise in volume over 2010. In second place: biotechnology, where investment was up by 22 percent. VCs funneled $4.7 billion into 446 deals. .
The clean-technology sector—alternative energy, pollution and recycling, power supplies and conservation—grew by 12 percent in both dollars and deal volume last year, with $4.3 billion going into 323 deals, compared with $3.8 billion and 289 deals in 2010.
And VCs are still investing in Internet companies: In fact, 2011 was the biggest year for Internet investments in the past decade. Last year, VCs poured $6.9 billion into 997 deals, a whopping 68 percent increase in dollars from 2010 when $4.1 billion went into 807 deals. Internet companies, a.k.a. those whose business models rely on the Internet, accounted for 24 percent of all venture capital dollars in 2011. That's up 18 percent from 2010.
The largest U.S. venture market was, of course, California's Silicon Valley, which claimed $11.6 billion of the investments. New England finished with $3.2 billion, and the New York metropolitan area with $2.7 billion.
The news wasn't all good, though: investing in seed-stage companies was down in the fourth quarter. VCs bet $133.9 million on 80 fledgling companies in the fourth quarter of 2011, down from $233.2 million to 90 startups in the fourth quarter of 2010.
The decline could be attributed to a wariness among VCs of start-ups in the riskiest stage. But Greg Beams, a partner in the Seattle office of Ernst & Young who leads the firm's venture-backed company practice, said the fourth-quarter dip could be because of the struggle companies had with initial public offerings.
IPOs are a common way for VC firms to exit their investments, freeing up cash for fresh investments. With less IPO activity, Beams told The Seattle Times, VCs are more careful about where they'll invest and how much they'll commit. "The IPO window didn't slam shut in the fourth quarter, but it certainly narrowed," Beams said.
Zoran Basich, editor of Dow Jones Venture Wire, said in a statement that VCs "still have a strong appetite for early-stage Web startups, but more mature companies may be swallowing some of the available cash."
He added: "As companies delay the process of entering the public markets during a difficult time for IPOs, the additional venture funding they need is leaving investors with less capital for new investments.”