Venture Capitalists Feeling More Adventurous

Venture funding is the lifeblood of many new organizations. Often, without that multi-million dollar deal near inception, a now market leader would never have gotten off the ground. Considering this, it is heartening to see that according to Dow Jones VentureSource, for the first quarter (Q1) of 2010, venture funding was up by 12% in the U.S., as compared to Q1 of 2009. In a total of 597 deals, over $4.7 billion were invested in companies across the nation. (Image courtesy: http://bit.ly/9vGM8O)

“Despite a great deal of economic uncertainty in the first quarter, the venture capital industry moved forward with a more active start than it did in 2009, which bodes well for the remainder of the year,” Mark Heesen, president of the National Venture Capital Association, said.

In New England, while the number of venture deals was 80 in Q1 of 2010, as compared to 69 in Q1 of 2009, only $508.6 million were invested in the region, as compared to $667.4 million last year. Of course, some New England industries did not suffer the same 24% decline in funding as the region as a whole.

IT companies in New England obtained 15% more funding in Q1 of 2010 than in Q1 of 2009. Overall, New England IT venture capital investments amounted to $147.4 million over 30 deals, as compared to $127.5 million over 23 deals in 2009. Nationally, IT companies raised $1.5 billion over 192 deals in Q1 of 2010. Unfortunately, this was in keeping with a now five-year decline in both the share of venture deals as well as the total dollar value of venture deals won by the industry. Some sources cite the market gradually shifting more attention to service industries as the reason behind this trend.

Jessica Canning, global research director for Dow Jones VentureSource, remains cautiously optimistic about the future of venture funding, explaining that “as the liquidity and fundraising environments thaw, investors have more capital on hand, but continue to deploy it cautiously.”

Worth noting is the fact that the venture capital numbers reported by Dow Jones do not mesh perfectly with those released by other sources. PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters reported the same dollar value of venture funding in Q1 of 2010 ($4.7 billion nationally), but spread this amount over 681 deals, instead of the 597 deals Dow Jones reported.

Furthermore, some sources claim that it is more telling to compare funding from Q1 of 2010 to quarter four (Q4) of 2009, rather than Q1 of 2009. When this approach is used, U.S. venture funding appears to have decreased, while New England venture funding appears to have increased--a complete reversal of the results yielded by using the year-to-year comparison method. Thomson Reuters, for example, reported a 9% decrease in the dollar value of venture deals and an 18% decrease in the number of venture deals from Q4 of 2009 to Q1 of 2010. (Image courtesy: http://bit.ly/clqYwR)

Ultimately, although discrepancies in estimations and quarter comparison conventions make it difficult to tell with certainty that recent venture capital reports are truly positive, analysts in the field seem to express the same idea: a slow improvement is underway. So, while now may not be the most hospitable time to seek venture capital, if businesses can hold out just a bit longer, that dreamed about multi-million dollar deal might just become a reality.

[Sources: http://bit.ly/ajc9m9, http://bit.ly/aqjKKF, http://bit.ly/9QEmMM, http://bit.ly/bX3HWR, http://bit.ly/bbd5d0, http://bit.ly/chn93b]