Q3 2010 Venture Capital Activity – $5.4 Billion into 715 Deals

At $5.4B of venture capital funding over 715 deals, Q3 2010 was a mixed bag. A superficial examination of the funding total through a “glass half empty” lens will suggest that venture capital remains in the doldrums given the quarter’s fairly anemic funding levels. The other take on the data would suggest optimism given the quarter’s dealflow strength.

If we had to choose, we’d opt for optimism. The quarter’s funding was most impacted by a relative absence of VC mega-deals, i.e., deals over $100 million which typically serve to drive the funding total up. The primary reason for optimism is the quarter’s deal strength indicating venture investors are opening their proverbial wallets. The emergence of seed VC deals across a variety of sectors, not just internet, also indicate a healthy early-stage investment environment.

Q3 quarterly venture capital report - VC funding and deal trend

The Big Three Loosen Their Stranglehold on VC - California, Massachusetts and New York which represented 65% of last quarter’s deals and 70% of funding still dominated but eased up a bit in Q3 2010 capturing 57% of deals and 63% of funding.

Seed Investments Keep Growing - From 1% of deals in Q3 ’09, seed venture capital investments grew to 11% of deals in Q3 2010. Although still largely an internet VC phenomena, seed investments are emerging in other sectors as well. The prevalence of seed investments drove much of the increase in deals in the quarter.

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Internet Series A Median Deal Sizes Increase - With the aforementioned significance of seed VC rounds within the internet sector, we saw an increase in median Series A deal sizes within the internet sector indicative of a true dividing line between Seed vs. Series A deals.

Green and Clean Tech Investments Lose Energy - Green/Clean Tech funding totals which typically benefit from mega-deals in areas like renewables or electric vehicles saw a large drop given the absence of such deals in the quarter. Deal volume was up, however, on the back of seed deals and a 300% increase in green / environmental software (smart grid) vs. Q2 2010.

Healthcare Investment on Road to Recovery - After the Q1 2010 nadir, healthcare funding has climbed nicely for the last two quarters with deal activity also growing strongly. Funding and deal levels, however, remain below YoY levels. Massachusetts and California continue to dominate but Mass share of healthcare VC funding fell quite significantly vs. prior quarter.

Internet – Social & Advertising Win; Gaming Loses - Social and advertising internet plays comprise 26% and 24% of internet deals and dollars, respectively. Perennial hot industry gaming falls off a cliff in Q3 2010 on both a deals and dollars basis.

California Dominates – Just a Bit Less - Dealflow remains strong but funding falls below $3B in the quarter and is off 25% vs. the year ago quarter. Internet and healthcare continue to win most of deals and dollars. Energy & Utilities’ investment in the state drops precipitously vs. levels seen in the first half of 2010.

Massachusetts Venture Funding Plummets - The state sees a five quarter low dropping below half a billion dollars of funding while dealflow stays consistent. Healthcare remains dominant but loses some share of dollars and deals to internet and software. Portion of state’s deals going to seed deals significantly less than New York and California.

New York Continues to Bet on Seed Internet Ideas - Once again, NY retains its mantle as the least diverse of the Big Three states with over 70% of deals and 60% of funding going to internet companies. The state’s seed stage deals have continued to climb.

Washington Continues its Ascent - Deals way up and funding grows modestly continuing state’s momentum. Seed deals make more of an impact. Internet and healthcare dominate deals and dollars.

Don’t Mess With Texas - Texas retains share of deals in VC landscape while funding dollars were up. Energy & utilities and healthcare are dominant sectors. Like other states, increased prevalence of seed investments.

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Quarterly Venture Capital Report – Q3 2010 by CB Insights –

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