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Venture Capital: Don't Call It a Comeback

Venture funds may be having trouble raising new funding, but they are still investing what money they have. The third quarter of 2009 saw venture capital activity hit $6.1B, a healthy 14% increase in venture capital activity over Q2 2009 when venture capital investment stood at $5.3B. The investments were spread across 678 deals (up from 613 in the prior quarter), according to ChubbyBrain, an information services company tracking venture capital, angel investor, private equity and incubator activity. Both the funding and deal levels represent a marked increase over the abysmal levels of venture investing seen in Q1 2009 when the proverbial bottom fell out.

getting funded badgeThe venture capital funding total doesn't compare favorably to Q3 2008, of course, when ChubbyBrain data shows venture investing stood at $7.2B. Whether venture investing will reach historic levels again anytime soon is an open question. While the pundits have a variety of opinions and prognostications, it is too early to tell where venture capital investment levels will end up purely based on the data. However, based on the significant uptick in the last two quarters, there is room for cautious optimism especially given Q3 2009's venture capital totals.

Here are some of Q3 2009's highlights:

The City That Never Sleeps Took a Nap: New York state's venture capital dollar funding levels, which are tightly tethered to NYC's performance, tumbled in Q3 2009 with a 41% decrease versus Q2 2009; deal volume (# of deals) also dropped by 11% quarter-over-quarter. A big part of this was a drop in Internet fundings in New York which fell by 32% and 21% on an investment dollar and deal volume basis, respectively. The state still made a positive showing with NYC, which remains in the top five cities for Internet investment, but the overall drop is significant. In fact, the drop in venture capital dollars flowing to NY companies moved the state to the number four spot in VC funding behind California, Massachusetts and Texas. New York State saw only $24M more venture capital investment flow to it than Georgia.

September Lets it Rain: Venture capital money got off the sidelines in a big way in September, which saw 2009's highest monthly deal activity on both a dollars and number of deals basis. September represented 40% of the funding in the quarter. With venture capitalists' wallets opening with increasing speed in the last month of the quarter, it will be interesting to see whether September is an inflection point in a larger VC recovery or just an outlier.

CompanyCityStateSectorAmount ($M)Date
TwitterSan FranciscoCAInternet100Sept-09
Tesla MotorsSan CarlosCAAutomotive & Transportation82.5Sept-09

California Love: The Golden state has traditionally received the lion's share of all VC investment dollars in the U.S., but in Q3 it took its domination to new heights. Attracting over $1.1 billion more VC money than it did in Q2, California posted a dramatic quarter-over-quarter increase of over 51%. Rounding out the top five most funded states were Massachusetts, Texas, New York, and Georgia. Overall, companies in 35 different states received venture investment.

CompanyCityStateSectorAmount ($M)Date
TwitterSan FranciscoCAInternet100Sept-09
Tesla MotorsSan CarlosCAAutomotive & Transportation82.5Sept-09

Southern Comfort: From a regional perspective, the South-Atlantic (comprising, amongst others, Georgia, North Carolina, and Maryland) made a particularly strong showing. Not conventionally considered a VC hub on par with the Mid Atlantic (which includes NY, NJ, PA) or even the Pacific Northwest, it nevertheless outpaced both of these regions in Q3, pulling in over $550 million of funding with a large share of this investment coming in the Health care sector.

CompanyCityStateSectorAmount ($M)Date
iBiquityColumbiaMDMobile and Telecommunication42.48Jul-09
SecureWorksAtlantaGAComputer Hardware & Services31.5Jul-09

Health Care Lives: Health care, the big winner in Q2 '09, again saw the most venture activity in the third quarter, attracting 32% of all funds. In absolute terms, however, the investment level remained flat at $1.9 billion. Beyond health care, ChubbyBrain tracked investments across 18 sectors, indicating continued participation by venture capital firms across a broad base of industries.

CompanyCityStateSectorAmount ($M)Date
Pacific BioScienceMenlo ParkCAHealth care68Aug-09
ZogenixSan DiegoCAHealth care51Sept-09

Green Shoots: After the boom of Green investing in Q3 2008, and the subsequent bust in the following quarters, Q3 2009 (and especially September) once again began to paint a more optimistic picture for the overall "industry." Leading the road to recovery were investments in renewables, in particular solar.

CompanyCityStateSectorAmount ($M)Date
Tesla MotorsSan CarlosCAAutomotive & Transportation82.5Sept-09
Serious MaterialsSunnyvaleCAIndustrial60Sept-09

Entrepreneurs—Dust Off Those Business Plans: Despite predictions that VC firms would squirrel away money just to fortify existing portfolio companies, the ChubbyBrain data for Q3 2009 (as well as Q2 2009) shows that venture-backed seed and Series A deals in early stage companies remains strong. Q3 2009 saw early stage deals account for 30% of the total venture deals being done.

CompanyCityStateSectorAmount ($M)Date
Alvine PharmaceuticalsSan CarlosCAHealth care21.5Sept-09
MooBellaTauntonMAConsumer Products & Services18.5Sept-09

Fast Company has partnered with ChubbyBrain to provide a quantitative perspective on what is happening in the worlds of VC and angel investment. Look for additional posts leveraging ChubbyBrain data in the coming days and weeks.

For a complete report on VC activity in Q3 CLICK HERE