Venture capitalists did not hesitate to open up their wallets in Q1 2012 making 785 investments in the quarter – the 2nd most in the last nine quarters.  But despite the aggressive number of deals, the checks written were smaller than prior quarters as investors plowed $5.9 billion into companies – the lowest level of VC funding since Q2 2010.

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Although this represents a 22% decline in funding from Q4 2012, we do not think that a single quarter dip in funding is in any way symptomatic of any sort of correction or any sort of bubble bursting.  Deal activity which we view as a better gauge of investor sentiment remains strong.  The funding dip is primarily the result of fewer VC mega deals in the quarter which as the quarter illustrates can and do move numbers significantly up when present and down wildly when absent.

VCs Continue to Plant Their Seeds

Seed investing hit a historical high with almost 1 of every 5 VC deals being an early stage seed VC investment.  These “call options” as we’ve referred to them in the past allow venture investors to invest minimal amounts in companies (primarily tech) and get first access to invest in these companies should they show signs of going from seed to something more substantial.

On the flipside, if the seed investment doesn’t work out, the firm has put little capital at risk.  Increased capital efficiency in tech has made these types of seed investments increasingly popular and Q1 2012 starkly demonstrated this with 19% of deals being of the seed variety.

The “Instagram Effect”?

For the first time, we’ve broken out mobile & telecom investment trends in this report – what we’re calling our own little “Instagram Effect”.  While mobile deal volume remained strong, funding dipped in Q1’12.  Like most tech investment sectors, VCs are favoring small seed investments in the mobile sector.  And since the Instagram acquisition by Facebook was announced when Q1’12 was already in the books, we expect that the coming quarters will be interesting for the mobile sector as companies and investors try even more aggressively to ride the mobile wave.

Green Tech Sputters

With no mega deals and continued uncertain sentiment green tech saw its lowest level of deals and funding in the last five quarters.  Will something help Green Tech shake its malaise in the coming quarters?

Internet Deals Climb on Back of Seed Deals

While internet funding fell 17%, deal volume grew 16% with a five quarter high for seed VC deals.

Healthcare’s Flu Like Symptoms Continue

After a strong Q4’11, VC funding to healthcare hit a five quarter low while deals stayed within their recent range.  The sentiment and chatter around healthcare continues to be mixed and so the sector will remain range-bound unless some catalyst, i.e., massive exit, regulatory change, etc. can spur it to move.

NY Hits Five Quarter Funding Low.  Uh Oh?

New York funding dipped but the state’s deal activity stayed strong so we don’t think the decline is a problem (yet).  NY remains a hub for early stage investment with 30% of deals in the seed stage and another 30%+ in the Series A stage.

Massachusetts Sees Five Quarter Low on Deals & Dollars

Unlike NY, Mass fell on both deals and dollars.  The gap vs. NY on the tech front also seems to worsen for Mass although the state continues to have a more balanced attack with healthcare and green tech.  If, however, there is a coming wave of internet & mobile opportunities, is Mass not positioned to capitalize on these opportunities?

Washington  Bucks National Trend – Funding Climbs

While national VC funding fell 22%, Washington actually climbed 41% making it the only major VC recipient to register an increase in funding.

California Leads but Sees Big Funding Dip.

Cali funding dips 26% vs. Q4’11, but still leads the pack.

 

Q1 2012 Venture Capital Report