[author: Donald Zuhn]

Last week, 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 the second quarter of 2012.  The report, which is prepared by NVCA and PriceWaterhouseCoopers LLP using data from Thomson Reuters, indicates that venture capitalists invested $7.0 billion in 898 deals in the second quarter, which constituted a 17% increase in dollars and a 11% decrease in deals as compared with the first quarter of 2012, when $6.0 billion was invested in 809 deals.  The NVCA also revised its first quarter numbers, raising the funding and deals totals by $200 million and 51, respectively.  As a result, the first quarter drop was somewhat less severe than initially reported (see "Biotech Venture Funding Drops 43% in First Quarter").

The report also notes that the Life Sciences sector (biotechnology and medical device industries) saw another decrease in both dollars and deals in the second quarter, dropping by 9% in funding to $1.4 billion and by 6% in deals to 174.  The drop in Life Sciences funding was the industry's fourth consecutive quarterly decrease, and was due mostly to a drop in Biotech funding where $697 million went into 90 deals, down from the $780 million that was invested in 99 deals in the first quarter.  Medical device funding remained flat with respect to dollars ($700 million) and was up 11% with respect to deals (84).  In contrast with the Life Sciences sector, the Software industry received the highest level of funding, securing $2.3 billion in the second quarter -- which marked a 38% increase over the first quarter.  The Software industry also led all sectors in deals with 290, a 16% increase over the first quarter.  Overall, eleven of the seventeen sectors tracked by the NVCA saw increases in dollars invested in the second quarter (in the first quarter, the numbers were flipped with eleven of seventeen sectors seeing decreases).  Eleven of seventeen sectors also saw increases in the number of deals being completed.

NVCA president Mark Heesen noted that "[t]he concentration of venture capital dollars in the hands of fewer firms will increasingly dictate the flow of investment," adding that this currently "translates into more funding for IT start-ups and less capital available for life sciences and clean technology."  He also noted that the NVCA "hope[s] to see this investment mix rebalance over time as the start-up ecosystem is better served with more diversity, not less."  Tracy Lefteroff, the global managing partner of the venture capital practice at PricewaterhouseCoopers pointed out that at the current pace venture funding in 2012 was unlikely to outpace the 2011 total of $30 billion, but would still exceed the 2010 total of $23 billion.  She also noted that "Software and Internet companies continue to be attractive industries for VCs since most of these companies tend to be capital efficient and don't require large amounts of capital to operate," and that "given the regulatory challenges currently impacting the Life Sciences industry and the amount of capital required to fund these companies, it's no surprise that investments in this industry have declined for the fourth consecutive quarter."