Venture Investing Rises In 2010 For First Time In 3 Years

Venture investing regained its footing in 2010 as a two percent rise in fourth quarter funding led the full year’s total to an annual increase for the first time since 2007.

The year saw U.S. venture capitalists put $21.8 billion into 3,277 startups, a 19% increase from 2009. First time financings, a key measure of future activity, rose 29 percent. GPs suggested another year of investment increases could follow in 2011 despite the slow pace of raising new venture funds.

The fourth quarter’s total came to $5 billion with 765 companies receiving money, according to the MoneyTree investment report released Friday by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters, the publisher of this blog.

“I think we are back to normal times,” said Gerry Langeler, a managing director at OVP Venture Partners.

The quarterly and annual totals reflect strong venture interest in software, cleantech and Internet companies. Investments in biotechnology and medical devices startups slowed for the quarter, thought biotechnology did manage a three percent rise for the year.

Funding for seed stage companies fell two percent in 2010, but early stage commitments rose 15% to $5.3 billion, or 24% of overall dollars, a sign of expanding interest new companies and technologies.

“I think there is an increase in energy,” said Foundry Group Managing Director Seth Levine on a conference call. “That’s true particularly at the seed and early stage.”

Levine projects investment levels will increase again in 2011 at a pace in the high single digits. Despite weak fundraising in 2010 – only $12.3 billion was raised – there is enough money in existing funds to fuel investments in the short term, said Langler.

Here are details from the fourth quarter and the annual investment report:

*Software companies received $1.1 billion in the fourth quarter, the highest total since the third quarter of 2007. Software was the largest investment category for the year with dollars placed up 20%.

*Cleantech startups received $765 million in the fourth quarter, a 73% gain. For the year, $3.7 billion went to startups, up 76% increase. The total is just below the all time high of $4 billion in 2008.

*Internet companies took in 17% of venture capital dollars in 2010, the same share as cleantech companies. Investments for the year were $3.78 billion and for the quarter were $1.2 billion, a quarterly increase of 65%.

*Biotech investment fell 24% in the fourth quarter and medical devices investments dropped 31%. Health care companies received 28% of venture dollars in 2010.

Despite the 2010 recovery, investment levels remain significantly below those of 2007 and 2008.