For all the hair-pulling that too much venture money is being thrown at startups, the third quarter actually saw a 31 percent sequential drop in venture dollars invested in the U.S., according to a new MoneyTree report from PriceWaterhouseCoopers and the National Venture Capital Association (see charts here). In the third quarter, VCs invested $4.8 billion in 780 deals, down from $6.9 billion in 962 deals during the second quarter (note that they reported slightly different numbers at the time, but I am using updated numbers here). Even compared to the third quarter of 2009, VC dollars are down 8 percent.
The biggest reason for the decline is that the second quarter was a huge quarter for later-stage cleantech deals, which are more capital intensive. The dollars going into cleantech went from $1.5 billion in the second quarter to $625 million in the third quarter, or a drop of nearly $1 billion. There were also fewer cleantech deals, with 58 in the quarter compared to 78 in the second quarter. And compared to last year, VCs poured $916 million into 53 cleantech deals in the third quarter of 2009.
While the bumpiness of cleantech investments explains most of the decline from last quarter, it does not tell the whole story. Of the 17 different industry sectors the reoprt tracks, 14 were down. For instance, $652 million less went into biotech and medical device startups compared to the second quarter. Infotech was also down. Software startups raised $1 billion in funding during the third quarter, down from $1.2 billion in the second quarter, but up from $800 million last year. Of that $1 billion, $660 million was invested in Internet companies, down 25 percent from the second quarter and down 14 percent from a year ago.
But what about early-stage seed deals, where frothy valuations seem to be increasingly appearing? A full third of all financing rounds (255 deals) and a quarter of the capital ($1.2 billion) went to first-time financings. This mars the fourth consecutive quarter when first-time financings were more than $1 billion, and compared to a year ago, they’ve been growing as a percentage of all venture deals and dollars.