Quarter sees dealflow and funding levels dial it up even more over Q1 2011. Compared to Q2 2010, deals climbed 25% and funding climbed 29%.

Note: Our entire 61 page venture capital activity report is free and embedded at the bottom of this post.

Q2 2011 registered $7.6B of venture capital funding invested in 768 deals representing a nine-quarter high on both dimensions. And this performance follows Q1 2011 which saw deals and funding at pre-recessionary levels. We know that all you bubble prognosticators are probably licking your lips reading this. But before you make these predictions, take a look at the quarter in a bit more detail as the quarter’s stats are not good news for everyone as we detail below.

At a higher level, if the final two quarters of the year maintain similar funding levels, we are on track for $29-$30 billion invested by VCs in 2011. Of course, some of the punditry have suggested that the VC asset class’ “right size” is around $25 billion so it will be interesting to see if the momentum of Q1 and Q2 continues or if we’re in for a second half swoon.

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Seed Venture Capital Investments Grow…

Q2 2011 saw the percentage of seed VC deals climb to 12% – a five quarter high. The seed VC phenomena showed strength across all sectors with internet, healthcare and clean tech all seeing the share of Seed VC deals growing to a five quarter high.

…But Overall, Early Stage Venture Capital Drops

Although Seed VC showed cross-sector strength, Q2 2011 did see the overall portion of VC deals to early stage companies (primarily Series A deals) dip to a five quarter low. We’ll be tracking this phenomena going forward because if it continues, it’s possible companies who’ve raised their Seed rounds might be orphaned.

Clean Tech Venture Capital Loses Some Gas

After Q1 2011 which saw green investment and deals rebound from prior period doldrums, Q2 2011 saw green venture investment and deals return to what might be their new normal which is a lot lower. On a YoY basis, deals were up 18% but funding was down 25%. On a sequential basis, deals were down 24% and funding was down almost 60%. Green software showed the most signs of life within otherwise lifeless clean tech.

Healthcare Venture Capital Shows Signs of Life

Medical devices continued to lead venture deals in healthcare with the overall sector seeing deals up 7% and funding climbing by 16% on a YoY basis. California and Massachusetts continued their dominance of healthcare venture investment seeing 56% of all deals and 75% of venture funding.

Venture Investment to Internet Sector Climbs Higher

VC deals and dollars to internet companies hit a five quarter high. Deals were up 28% YoY and funding grew 69% vs. Q2’10. A couple of mega-deals to the group buying and ecommerce industries drove funding levels. California represented almost 1 of every 2 internet deals while New York retained the #2 spot followed by Massachusetts.

Venture Capital to California, Massachusetts and New York (The Big 3) Grows

The trifecta of California, Mass and NY took over 60% of deals and more than 75% of funding.

I Wish They All Could be California Venture Capital Deals

California extended its dominance registering a five quarter high for deals. On a YoY basis, deals in the state were up 27% and dollars were up 19%. Bucking the national trend, the state also saw an uptick in early stage activity. California’s venture deals were primarily centered on internet companies followed by healthcare. The 2 sectors combined for 58% of the state’s deals and 56% of the funding.

Massachusetts Flexes Its Venture Capital Muscles

Massachusetts saw over $1B of funding and saw a five quarter high on both deals and dollars. Like Cali, Mass bucked the early stage downward trend and actually saw increased early stage activity. Internet and healthcare investment represented ½ of deals and ¾ of funding.

New York VC Funding Keeps Rising

NY hit a 5 quarter funding high growing 52% YoY while deals grew 27%. Seed deals hit a five quarter high while Series A dipped. The internet and mobile sectors dominated taking 85% of deals and 90% of funding.

Texas Climbs on Deals and Dollars

Texas grew deals and dollars 12% and 40% yoy, respectively, and saw a 5 quarter high on deals. The state’s VC haul was led by internet deals but overall, Texas VC is one of the most diverse in terms of sectors..

Sleeping in Seattle

Deal count in Washington grew 10% vs. Q4 2010 but funding remained at the low levels seen in prior quarter. The state maintained a fair level of diversity in terms of industries.

Quarterly Venture Capital Report – Q2 2011 – CB Insights