Posted by Tom Foremski - January 20, 2012
The latest report on trends in US Venture investments shows a massive decline of 40% in seed investments in US startups in the final quarter of 2011, and a much larger drop of 48% for the entire year.
The MoneyTree Report, prepared by PricewaterhouseCoopers, uses data reported by VC firms to their trade group the National Venture Capital Association, and Thomson Reuters.
There was an overall decline in funding across software, Internet and IT services, but by far the largest drop was in seed funding for startups, which almost halved in 2011.
From the financial figures it is not clear if this drop in funding is being made up by private deals made by wealthy individuals. There has been a dramatic rise in the number of people wanting to become Angel investors following the spectacular success of a handful of prominent private investors, in Silicon Valley and New York.
Angel investors such as Ron Conway, Dave McClure, and Jeff Clavier, have become household names to many, and now manage large funds thanks to the fame they earned from quick fortunes made from savvy investments. In some cases, startups went from seed funding to acquisition in under a year, sold to tech giants such as Google, Microsoft, SAP, Facebook, Twitter, IBM, Amazon, and others.
As private investing in startups has expanded, the traditional VC firms have moved into later stage funding. The VC firms work closely with groups of Angels to spot investment opportunities, in essence outsourcing many of the risks in seed funding unproven startups and then cherry picking the best.
Some of the other key points in the MoneyTree report are detailed here by Mark Boslet at PEHub:
peHUB » Venture Investing Sees A Weak 4Q...
Fourth-quarter deal making was particularly strong in cleantech and among biotechnology startups, but software, Internet, medical devices and IT services investing fell.
Investments for the quarter came to $6.57 billion with venture capitalists completing 844 deals... The totals were down 10% in dollars and 11% in deals from the third quarter.
Software was the largest investment category with allocated capital down 16%...
Internet investing fell a more precipitous 23%...
and medical devices commitments stumbled 35%.
Seed-stage investing of $134 million continued a year-long decline. For the year, seed funding fell 48% in dollars while deal volume was essentially flat.
For the year, venture capitalists put $28.4 billion into 3,673 deals, an increase of 22% in dollars and 4% in deals, the MoneyTree Report found.
Some of the fourth quarter trends don't look good but they have far to fall to become a problem. It is worth noting that 2011 was a very good year, the third largest amount of venture capital invested in the last ten years.
There are some interesting charts here and a slideshow.