VCs Put $6.5B In 890 Companies In Q3 2012; Total Dollars And Deal Volume Both Down

Venture capitalists invested $6.5 billion in 890 deals in the third quarter of 2012, according to the MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association (based on data provided by Thomson Reuters). For the quarter, investments were down 11 percent in terms of dollars and five percent in the number of deals compared to the second quarter of 2012 when $7.3 billion was invested in 935 deals.

Investment for the first three quarters of the year was $20 billion into 2,661 deals. The report says that this level is below what it was at this point last year last year, making it likely that 2012 will fall short of 2011 in terms of both dollars and deal volume.

Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US, said in a release "We're seeing fewer new venture funds being raised which means less capital is available for new investments. And, we're seeing venture capitalists be very cautious with the capital that is available due to the lack of a significant number of liquidity events. Instead, venture capitalists are continuing to support the companies already in their portfolio."

The Software industry received the highest level of funding for all industries with $2.1 billion invested into 304 deals during Q3, marking the fourth quarter in the last five in which investment in Software exceeded two billion dollars. This level of investment represents a 12 percent decline in dollars and a one percent increase in deal volume from the second quarter when $2.4 billion was invested in 300 deals.

Internet-specific investing fell 12 percent in dollars and eight percent in deals from the previous quarter with $1.7 billion going into 250 deals but remained well above the billion dollars per quarter level that has been prevalent for the last two years. Additionally, six of the top 10 deals for the quarter were in the Internet-specific category.

Square of course was one of the largest VC deals in the quarter, raising $200 million. Box also raised a hefty amount this past quarter, bringing in $125 million. Fab raised $105 million, GitHub raised $100 million, JustFab nabbed $76 million and Quirky raised $68 million; all in the past quarter.

Other big raises in Q3 include Zendesk, Nimble Storage, Zscaler,, Edmodo, DocuSign, and Jumptap.

In terms of stages, VC investment declined across all stages of development in both dollars and deals in the third quarter of 2012. Seed stage investments fell 22 percent in dollars and seven percent in deals with $178 million invested into 67 deals in the third quarter. Early stage investments also declined, falling 21 percent in dollars and seven percent in deals with $1.7 billion going into 395 deals. Seed/Early stage deals accounted for 52 percent of total deal volume in Q3, compared to 53 percent in the second quarter of 2012. The average Seed deal in the third quarter was $2.7 million, down from $3.2 million in Q2. The average Early stage deal was $4.4 million in Q3, down from $5.2 million in the prior quarter.

Expansion stage investment decreased just three percent in dollars and one percent in deals in the third quarter, with $2.6 billion going into 241 deals. Overall, Expansion stage deals accounted for 27 percent of venture deals in the third quarter, and the average Expansion stage deal was $10.8 million, down from $11.1 million in the prior quarter.

Investments in Later stage deals decreased 10 percent in dollars and four percent in deals to $2.0 billion going into 187 rounds in the third quarter. Later stage deals accounted for 21 percent of total deal volume in Q3, similar to Q2 when $2.2 billion went into 195 deals.

Financings where companies are receiving venture capital for the first time declined eight percent in dollars to $1 billion in Q3, but the number of deals increased one percent to 297 deals in the third quarter. First-time financings accounted for 16 percent of all dollars and 33 percent of all deals in the third quarter, compared to 15 percent of all dollars and 32 percent of all deals in the second quarter of 2012. Companies in the Software, Media & Entertainment, and IT services industries received the most first-time rounds in the third quarter. Seed/Early stage companies received the bulk of first-time investments, garnering 82 percent of the deals.