Quarterly Venture Capital Report (Q3 2012)

Venture capitalists remained ready, willing and able to invest in Q3 2012 making 835 investments totaling $7.5 billion. The deal count was the highest since the dot com days largely driven by what seems to be an insatiable VC appetite for making small seed investments in fledgling companies. The funding tally was also strong at $7.5 billion but down relative to Q3’11 when it registered $7.9 billion. It was also down versus the gargantuan $8.1 billion seen in the prior quarter, Q2’12.

Of course, when one reads the words dot com in the same sentence as VC, the bubble chatter will begin. We, again, think it is without merit. Unless Q4’12 registers in at $9.2 billion of VC funding (we’ll bet a good amount of money it won’t), 2012 will actually be a down year in terms of total VC funding to companies.

Yes, there continues to be frothiness in the Seed VC investing area, and Q3’12 saw an uptick in seed VC deal volume which were already quite high as well as size ofSeed VC deals. And so the reality is that there will be blood among these Seed VC companies as many will be orphaned or just unable to raise follow-on financing. The proverbial “blood”, however, in this case will not be that of VCs. Seed VC is a low risk call option for most VCs. If all Seed VC deals failed, it’d be the equivalent of a single medium-sized VC fund going out of business. That happens all the time and presents no risk to the entire VC ecosystem. When it becomes easy to raise big Series C and D rounds, then we’ll talk about a bubble.

Bigger, Faster Seed Planting

Seed investing represented 31% of all VC deals. Mobile saw 42% of its deal volume at the Seed VC level. Healthcare also saw growth in Seed investing as well.

Both internet and mobile saw larger Seed VC medians hitting the $1 million mark for the first time suggesting that the frenzy for Seed VC investing is allowing entrepreneurs to raise larger seed rounds than in the past.

The Mobile Wild West

VCs clearly are positioning themselves for the next big wave they see in mobile. While big deals insecurity and payments buoyed funding totals, the deal breakdown by industry within mobile remains diverse. For the first time, Cali actually saw more activity to the mobile sector than Healthcare.

Green Tech Fizzes; Reveals Unusual Suspects

The clean tech doldrums continued with both deals and funding hitting five quarter lows. Interestingly, NY and Illinois took #2 spots for green tech deal and funding activity, respectively.

Healthcare Deals Dip; Funding Stabilizes

Third straight quarter where healthcare deals decline. Funding climbs a bit over Q2’12 but down 7% vs. Q3’11.

Southern California – Can I Get a Little Respect?

We broke out some stats on Silicon Valley vs. SoCal (p 46) after some of our customers in the area told us SoCal was the Rodney Dangerfield of VC markets. And there was something to their claims. Based on VC funding, SoCal actually was the 3rd biggest market ahead of NY and just behind Silicon Valley and Massachusetts.

NY Does it Smaller; Maybe Not a One-Trick Pony

New York deal count hit five quarter high but is dominated by lots of small Seed VC deals (49% of deals). Although still very tech dominated, the quarter did see NY register signs of life in both green tech and healthcare which typically are nowhere to be found.

Mass Bucks National Trend – Deals and Dollars Up

Mass which fell on both deals and dollars last quarter increased on both this go around. The market saw strength in mobile as well as a modest comeback in the healthcare sector.

Washington and Texas Both Fall Down

After a couple of strong quarters, Washington fails to keep its momentum slipping on both deals and dollars. Texas continues its recent descent with deals and funding both being weak.