Annual Venture Funding Drops for First Time in Three Years


NVCALast month, the National Venture Capital Association (NVCA), a trade association representing the U.S. venture capital industry, released the results of its MoneyTree Report on venture funding for 2012.  The report, which is prepared by NVCA and PriceWaterhouseCoopers using data from Thomson Reuters, indicates that venture capitalists invested $26.5 billion in 3,698 deals in 2012, which constituted a 10% decrease in dollars and a 6% decrease in deals as compared with 2011.

PricewaterhouseCoopers (PWC)Among the sectors hit the hardest in 2012 were the Clean Technology and Life Sciences sectors, which experienced double-digit decreases in investment dollars.  The Software sector maintained its status as the single largest investment sector in 2012, with venture funding rising 10% to $8.3 billion and deals up 8% to 1,266.  The Biotechnology sector saw venture funding drop 15% to $4.1 billion in 2012 (with 466 deals), which was still good enough for second place.  The Medical Devices sector saw drops in both dollars and deals in 2012, falling 13% in dollars (to $2.4 billion) and 15% in deals (to 313).  Overall, fifteen of the seventeen sectors tracked by the NVCA saw decreases in dollars invested in 2012, with only the Software and Retailing/Distribution sectors recording increases.Venture Funding

The annual decreases in dollars and deals for 2012 were explained in part by a 3% decrease in dollars in the fourth quarter ($6.4 billion) as compared with the third quarter (see above).  Fourth quarter deals, however, were up 5%.  While the annual numbers for the Biotechnology sector were not good, venture funding for the sector rose 3% (to $1.3 billion) and deals were up 13% (to 135) for the fourth quarter (see below).  Similarly, the Medical Devices sector saw increases in both dollars (up 32% to $581 million) and deals (up 9% to 74).

Biotech Venture FundingTracy Lefteroff, the global managing partner of the venture capital practice at PricewaterhouseCoopers indicated that "[g]eneral economic uncertainty continues to hinder capital investments, and venture capitalists are no different."  She noted that "[a]s the number of new funds being raised continues to shrink, venture capitalists are being more discriminating with where they're willing to place new bets," adding that "[a]t the same time, they're holding on to reserves to continue to support the companies already in their portfolio."  She explained that "[b]oth of these factors are taking a toll on the amount of capital available for young start-ups, which is reflected in the 38 percent drop in the number of Seed Stage companies receiving VC dollars in 2012."  NVCA president Mark Heesen pointed out that "[w]e continue to see the impact of public policy on venture capital investment levels in very specific ways," noting that "[l]ife sciences investment was suppressed for much of the year, particularly with first-time fundings, due in part to the impact of the regulatory and reimbursement environments."

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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