By Carol TiceWe've got enough data now to see that 2010 is definitely shaping up as a better year for snagging venture-capital funds than 2009. More than $16 billion has already been handed out, compared with the $18 billion and change companies received in all of last year, according to the third-quarter PricewaterhouseCoopers/National Venture Capital Association/MoneyTree report.
It's not exactly time to strike up the band and have a ticker-tape parade -- it's still a far cry from the $30 billion-plus entrepreneurs scored in 2007. One more troubling thing: The volume of cash handed out in the third quarter this year seemed to crash. More companies got money -- 780 vs 716 in the third quarter of 2009 -- but the total was less -- $4.8 billion vs $5.2 billion.
Translation: Average deal size got smaller, and VCs were tighter with their money. Let's hope that's not the start of a trend.
You'd think with the recovering IPO market -- more than double the number of offerings this year versus last -- VCs would have money burning a whole in their collective pockets, ready to invest in new deals. But apparently not quite yet.
Sector by sector M&A
When you're talking venture capital, it's always good to look at VentureDeal's merger and acquisition quarterly report, too. In the slow IPO market, M&A is probably an even better gauge of whether VCs are seeing paydays and having money to invest again. Here's a sector-by-sector report:
Biotechnology/pharmaceutical/medical devices: The sector saw a 63 percent jump in deals. Medical devices were the biggest piece of the pie, with four deals worth $1.67 billion.
Internet/digital media/e-commerce/software: This sector was up too, but not as much -- 32 percent. But many more deals happened here -- 41 vs just 13 in biotech. A well-known example is technology blog TechCrunch's acquisition by AOL. But the biggest-money niche here was software, with $1.7 billion raised.
Telecom/wireless/mobile/communications: This was the ho-hum space, with flat deal volume. All the deals were on the mobile side, for a total of only $113 million.
Location, location, location
It's not just about getting VC money, a recent study showed. It matters how close to home your investors are. A recent study at the University of Indiana showed entrepreneurs whose venture backers were more than 25 miles away ended up having to raise smaller amounts more frequently than did companies with nearby VCs.
The upshot: You want investors who're close enough to drop by and help with day-to-day questions and issues. Performance was better for the companies with close-by investors, too.
This study has troubling implications for many companies, given that the bulk of funding comes from just a few places -- Silicon Valley, New York and Massachusetts. But there are good VCs in small towns, too. Apparently, it's worth taking the trouble to connect with your local VC community.
2011 VC forecast
Finally, the outlook for next year is positive, an NVCA forecasting survey of more than 300 VCs showed. More than half of the VCs expected investment to increase next year. One-quarter thought the level would remain the same, and only one-quarter thought it would decrease.
Hot sectors for next year: Consumer Internet and digital media (82 percent), cloud computing (80) percent and mobile/telecom (66 percent). Healthcare should also stay hot -- 77 percent expect investment there to increase.
Photo via stock.xchng user misterhyun
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