Venture Firms Put $8.4B In U.S. Companies In Q3 Of 2011; Up 29 Percent

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According to the latest Dow Jones VentureSource report, venture funding in U.S. companies was on the rise in Q3 2011. Investors put $8.4 billion into 765 deals for U.S.-based venture companies during the third quarter of 2011, a 29% increase in investment and 8% increase in deals from the same period last year. The median amount raised for a round of financing during the third quarter was $6 million, up from the $5 million median a year earlier.

Dow Jones says these levels of investment put the industry on pace to near pre-recession investment levels by the end of the year. The report shows that investments in ‘Consumer Information Services’, which includes online search, entertainment and social media companies, totaled $1.3 billion for 104 deals during the third quarter, more than double the financing collected for 94 deals during the same period last year. Thus far, the consumer information services sector has raised $3.8 billion total in 2011, and is o pace to exceed the $4.2 billion companies raised in 2010.

Within the Consumer Internet sector, deal activity for young start-ups was strong as 57% of deals were seed- or first-rounds. While 30% of deals went to later-stage companies, these companies accounted for $1 billion of the $1.3 billion companies in the sector collected. Thirteen percent of deals were second rounds.

Dow Jones explains that VCs are pouring significant amounts of capital in later stage deals but second rounds are ‘lagging.’

Companies in the software and information technology industry raised $2.1 billion for 227 deals in the third quarter, which is a 9% increase in financing but 7% drop in deal flow. The Software sector continued to be a bright spot for IT and collected the lion’s share of investment as 165 deals raised $1.3 billion. While investments in the Semiconductors and Hardware sectors declined, deal flow for Communications and Networking companies showed some strength as 25 deals raised $354 million, up from 22 deals that raised $246 million in the same period last year.

Deal flow for Business and Financial Services companies rose 7%, and capital invested spiked 65% as 139 deals collected $1.5 billion. Business Support Services saw the biggest jump, primarily driven by interest in marketing, advertising and data management companies. Business Support Services start-ups raised $1.2 billion for 104 deals in the third quarter.

The Energy and Utilities industry raised $635 million for 33 deals, an increase from the same period last year when 23 deals raised $381 million. Renewable Energy companies claimed almost all of the industry’s investment as 30 deals raised $621 million.

In the third quarter, Medical Device companies raised more venture financing than Biopharmaceutical companies for the first time since 1998. Sixty-eight Medical Device deals raised $857 million, a 15% rise in deal activity and 30% increase in capital invested from the same period last year. In the Biopharmaceuticals sector, 78 deals raised $715 million, a drop in capital invested from the year-ago period when 71 deals raised $865 million. Overall, the Healthcare industry raised $1.9 billion for 184 deals, an 11% decline in capital invested and 9% increase in deal flow.

Early-stage deals continued to boom in this quarter. Seed and first-rounds accounted for 42% of deals and 21% of capital invested during the third quarter, compared to last year when early-stage rounds claimed 36% of deals and 22% of capital raised. Second rounds dropped from 23% of deal activity in the third quarter of 2010 to 20% in the most recent quarter. Later-stage deals accounted for 37% of the quarter’s deals and 58% of total capital raised, compared to last year they accounted for 39% of deals and 57% of capital raised.

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