Venture investments up slightly in first quarter

If you live in Silicon Valley and are looking for venture capital, you’re probably looking in the right spot.

And if your startup deals in software or biotech or green energy, well then, you’re really in luck, according to the latest MoneyTree report, produced by the National Venture Capital Association and PricewaterhouseCoopers with data from Thomson Reuters.

Those three industry sectors collectively scored 50 percent of all venture money invested in the quarter, according to the Washington, D.C.-based trade group.

Now for the bad news: The 736 deals invested nationwide was the lowest total in a single quarter since fall 2009. And while the dollar amounts rose compared to last quarter — to $5.9 billion — they did so only modestly.

Still, considering it had been four years since first-quarter dollars surpassed those in the previous quarter, the folks behind the report were buoyant.

“While we did see a drop in deal volume, the dollars invested remains strong,” said Tracy Lefteroff, head of PricewaterhouseCoopers’ venture capital practice. “We’re seeing an uptick in average deal size, which hit $8 million for the first time since the first quarter of 2007.”

He also noted that 14 companies received funding rounds of $50 million or more in the quarter, with four of those deals worth more than $100 million. “We haven’t seen this many deals worth $50 million or more in a single quarter since 2001,” Lefteroff said.

Ira Ehrenpreis, a venture capitalist at Technology Partners, said the heftier deal size is related to a pending run of initial public stock offerings, which have been predicted to take off this year after a long hiatus.

“The bar for going public is a lot higher than it used to be,” he said, in part due to the costs of complying with 2002’s Sarbanes-Oxley regulations. “Companies are taking more private money to continue growth while they build toward an IPO.”

As a result, while the number of investments in seed and early-stage companies dropped 14 percent from the prior quarter, investments in later-stage firms jumped 54 percent in dollars (to $2.1 billion) and 11 percent in terms of deals (to nearly 200).

Software companies took in the biggest slice of funding for all industries, with $1.1 billion invested during the first quarter. The software industry also had the most deals with 187. Both numbers, however, were declines over the previous quarter.

Clean technology, on the other hand, saw a 26 percent increase in dollars over the fourth quarter, to $1 billion. The number of deals completed in the first quarter also rose from 62 to 69. The dollar increase was driven by several large investments, including five of the quarter’s top 10 deals.

“We should continue to expect to see these kinds of numbers, given the global energy demands of the 21st century,” Ehrenpreis said.

In terms of dollars invested, the biotechnology sector was in third place, rising 6 percent from the prior quarter to $784 million. The number of deals dropped, falling 17 percent from the fourth quarter of 2010.

The good news for Silicon Valley is that almost a third of those biotech dollars were invested here, along with 43 percent of the energy investments and 45 percent of software dollars.

Indeed, the latest numbers continue to belie the debate about whether other places in the United States or abroad could be threatening Silicon Valley’s technology dominance.

VCs put nearly $2.5 billion into 212 valley companies in the first quarter — 42 percent of the total venture dollars invested nationwide. That’s an uptick over both last quarter and the year-prior period.

“I have no worries that the valley is losing its innovation mojo,” said longtime tech chronicler Geoffrey Moore, the author who is also a partner at Mohr Davidow Ventures.

“This is Darwinism at work. As long as we can keep the doors open to all, I expect this valley to continue to outperform the rest of the world, as it has for the past 40 years.”

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.