Two new studies indicate that funding for U.S.-based startups fell nearly 20 percent in the first quarter of the year, with cautious venture capitalists backing fewer deals.
The studies use different data and methodology. A MoneyTree study conducted by PricewaterhouseCoopers and the National Venture Capital Association (based on data from Thomson Reuters) puts the figure at 19 percent. DowJones' VentureSource puts the figure at 18 percent.
According to the MoneyTree study, startup investments totaled $5.8 billion in the first three months of the year, compared with $7.1 billion in the first quarter of 2011. There also were 15 percent fewer deals this past quarter: 758, compared with 889 in 2011.
Internet, energy and medical device later-stage startups grabbed the biggest slice of the money pie: 208 companies picked up $2.28 billion. That’s down from 234 companies and $2.41 billion in 2011.
Investments in companies of all stages declined, though seed-stage companies suffered the worst cutbacks. Fifty-three seed-stage companies received $141 million in funding, down from 86 companies and $211 million a year earlier.
That picture may not be quite as grim as it looks, however. Mark Heesen, the president of the National Venture Capital Association, noted that with the rapid pace of innovation, fledgling companies likely are being funded in "stealth mode, forming a pipeline that is not yet visible to the public eye."
Zoran Basich, editor of Dow Jones VentureWire, told The Chicago Tribune: "Now that some of the mature Internet companies that soaked up billions in venture capital the last couple of years have gone public or are near an exit, we’ll see if venture investors approach a fresh crop of startups with the same zeal or if investment remains at the level we saw in the first quarter."
This year 290 early-stage startups grabbed $1.61 billion, down from $1.81 billion and 320 companies. And 207 expansion-stage companies picked up $1.71 billion, down from 221 companies and $2.26 billion.
Jessica Canning, the global research director for VentureSource, told The Los Angeles Times: “The declines were pretty evenly spread across industries so there weren’t any big winners or big losers in the quarter, but there were some surprises," she says. "Investment in consumer Internet companies fell after two exceptional investment years, while the IT industry fared well thanks to strong interest in software startups." This year, software companies received $1.3 billion through 196 deals–six percent more deals and 61 percent more money than a year earlier.
The biggest funding deal of the quarter, at $238 million, went to SquareTrade, a provider of extended-warranty services for electronics. Second place: Sapphire Energy, a developer of algae-based crude oil, which received $139 million in early-stage funding. Fisker Automotive, a later-stage electronic vehicle company, was in third place, with $130 million.
Not surprisingly, California companies picked up the largest percentage of VC funding at 47 percent. That was more than double the second and third place winners: Boston's metropolitan area, with 17 percent, and New York City, with 5 percent. The figures also confirmed that Austin is seriously on the rise for innovation: 19 companies raised a combined total of $274.4 million, according to the MoneyTree survey. That's a whopping 204 percent jump over the $90.2 million that Austin companies received in the first quarter of 2011.
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