NEW YORK – Next time you overhear an entrepreneur complain that he just can’t find any investor interested in coughing up some first-round venture dollars, cut him some slack before concluding that either his idea or Rolodex must not be up to snuff.
According to third quarter disbursement figures from Venture Economics and the National Venture Capital Association (NVCA), early-stage financing is becoming harder and harder to come by. Indeed, such transactions only constituted 19.9% of the $25.9 billion raised by 1,774 companies in the third quarter, a drop from the 25.7% recorded over the preceding three months.
Part of the probable explanation for this dip is the continued trend of venture capitalists eschewing new deals in order to concentrate on follow-on financings for existing portfolio companies stymied by the public markets. To be sure, numerous companies who completed so-called mezzanine rounds earlier in the year have gone back to the private side for more capital, and once-rare PIPE offerings are inundating VC deal flow as general partners struggle to maintain returns in their public portfolios.
Of the 10 largest third quarter deals recorded so far by Venture Economics, there were no first-round transactions and only two were Series B rounds. The quarter’s largest deal was a $256 million Series C deal for DSL CLEC provider Network Telephone Corp. Participants in the round included Mellon Ventures, Lehman Brothers Venture Capital, Brown Brothers Harriman & Co.’s 1818 Fund, Desai Capital, Spectrum Equity Investors and Wind Point Partners.
Other big winners listed by Venture Economics included $200 million for Internet service and solutions provider Relera Inc., $182 million for telecom switch developer KMC Telecom Holdings and $158 million for CLEC operator Norigen Communications Inc., formerly known as Navitar.
In the third quarter, Internet-specific companies continued to pull the greatest amount of funding at $11.54 billion, a decrease of 17% from the second quarter’s $14.01 billion. Other successful third quarter sectors included communications with $4.59 billion raised, computer software and services with $3.01 billion raised and the semiconductor sector with $2.15 billion raised.
As for the biggest gainer, 69 biotechnology firms secured a total of $977.50 million in the third quarter, up over 140% from just $406.21 million raised the previous three months.
With regard to geographic disbursements, Northern California continued to lead the way with over 30% of all venture investing. New York and New England followed with 10.84% and 10.78%, respectively.