Fresh signs that VC deal, dollar flow is shrinking for biotech

There are more gloomy venture numbers to ponder today. Following a string of downbeat assessments for the biotech investment environment, CB Insights found that high regulatory risk and fewer exit opportunities are conspiring to keep the smart money focused on other technologies.

Overall deal volume among healthcare companies--with medical devices leading the way followed by pharmaceuticals and then biotech--slid 22% from the 184 deals recorded in the third quarter of 2010 to the 143 venture deals seen in the third quarter of this year. On a quarter-to-quarter basis, deal volume slipped by three. In the third quarter of 2010 healthcare companies grabbed $1.75 billion in cash, compared with $1.67 billion for the most recent quarter. In the second quarter of this year the dollar amount spiked to $1.89 billion.

In a hopeful sign for new startups, seed rounds as a share of the overall number of deals spiked in the third quarter to 11%, the highest it has been in more than a year. Not too surprisingly Massachusetts and California grabbed the most healthcare VC dollars than any other states.

All of the third quarter VC reports have been laced with falling numbers, with the National Venture Capital Association claiming that a large number of venture groups are more interested in investing outside the U.S., where their companies won't have to come face-to-face with FDA regulators. Market turmoil, meanwhile, has all but wiped out the small number of IPOs registered in biotechnology, closing a door on one key exit strategy that hasn't been very promising over the last three years. And for years venture groups have been investing more than they've been able to raise--a trend that was highlighted by Prospect's recent decision to abandon its latest fundraising efforts.

- here's the report from CB Insights