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Venture Investors Put $26.2 Billion into U.S. Companies in 2010, Up 11% From 2009

Dow Jones VentureSource: Business and Consumer Services Spur Investment Growth;
VCs Pursue Growth Strategies for Maturing Web Companies

NEW YORK – January 24, 2011 – In 2010, growth in venture capital investment was driven by capital commitments outside of the Information Technology (IT) and Healthcare industries, which are traditionally venture capitalists’ comfort zones. Throughout the year, 2,799 venture deals raised $26.2 billion, a 6% increase in deals and an 11% increase in capital invested over 2009, when 2,636 deals raised $23.6 billion, according to Dow Jones VentureSource.

In the fourth quarter of 2010, 735 deals raised $7.6 billion. This represents a 6% decrease in deals completed but a 6% increase in capital invested from the particularly strong fourth quarter of 2009, which tracked 782 deals completed and $7.2 billion invested.

“The Healthcare and IT industries accounted for more than half of venture investment in 2010 but are not currently driving the growth,” said Jessica Canning, global research director, Dow Jones VentureSource. “Investment in business technologies, consumer solutions and energy companies gained the most traction in the last year.”

The median deal size for 2010 was $4.4 million, down from the $5 million median in 2009.

Healthcare Investment Drops, IT Up Slightly

Venture investment in Healthcare companies fell 7% in 2010 to $7.4 billion for 702 deals. As usual, Biopharmaceuticals companies claimed the largest proportion of investment in the Healthcare industry, with 317 deals raising $3.4 billion. The industry’s smallest sector, Healthcare Services, saw the strongest growth. Fifty-four Healthcare Services companies raised $1.2 billion, a 29% increase in deal activity and more than triple the capital raised in 2009.

IT companies garnered $7.2 billion for 889 deals in 2010, up from the $6.7 billion put into 858 deals in 2009. Software was the only IT sector to see an increase in both deal activity and capital invested as 608 deals raised $3.8 billion. The Communications and Networking sector was the hardest hit as it collected $1.2 billion for 90 deals, a 27% drop in deal activity and 21% drop in capital invested from the previous year.

Business and Consumer Services Spur Investment Growth

The Consumer Services industry garnered $4.4 billion for 483 deals in 2010, a 67% spike in capital invested and a 23% jump in deal activity over 2009. The industry, which is driven by investment in the Web-heavy Consumer Information Services sector, benefited from increased investor interest as well as sizable cash infusions for maturing Web companies.

"Venture capitalists are pursuing strategies more akin to growth equity investing than traditional venture capital with some of their maturing Web companies,” said Scott Austin, editor of Dow Jones VentureWire. “Companies like Groupon, Zynga and Facebook are generating hundreds of millions of dollars in revenue so VCs don’t need to exit quickly. Instead, they are growing these companies through acquisitions of technology and talent as well as business development, which can require sizable cash infusions.”

In 2010, both investment and deal activity in the Business and Financial Services industry jumped 8% as 447 deals raised $3.3 billion. The largest proportion of investment in the industry went to the Business Support Services sector, which raised $2.5 billion for 337 deals and was largely driven by investment in advertising and marketing technologies and services.

Renewed Interest in Renewables

After the Energy and Utilities industry saw deal activity drop 16% and investment halved from 2008 to 2009, investors returned to the industry in 2010. Last year, 113 Energy and Utilities deals collected $2.5 billion, a 19% increase in deal activity and 39% increase in investment over 2009. The industry continued to be driven by the Renewable Energy sector, which collected $2 billion for 94 deals, a 35% increase in capital invested and a 25% increase in deal activity over the year earlier.

VCs Continue to Focus on Later-Stage Deals

Later-stage deals accounted for 40% of the year’s deals and 61% of total capital raised in 2010, a slight change from 2009 when later-stage deals accounted for 38% of deals and 55% of capital raised. Seed- and first-rounds accounted for 36% of deals and 18% of capital invested during 2010, nearly unchanged from 2009 when early-stage rounds claimed 35% of deal activity and 19% of capital raised.

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