VCs pick up deal-making pace in 'solid' quarter

Venture capital groups picked up the pace on deal-making in the third quarter, but cut back slightly on the amount of money they invested in developers, according to the latest analysis from PricewaterhouseCoopers and the National Venture Capital Association.

The trend report, a key bellwether for an industry that needs a fresh supply of venture funds to live on, found that biotechnology accounted for the largest number of new deals among the industries they track. VCs provided $905 million to biotechs in 104 deals. That compares to the $947 million invested in 90 deals during the second quarter.

"The third quarter illustrates a gradual and deliberate industry shift towards a longer term venture capital investment strategy," said Mark Heesen, president of the NVCA. "Venture capitalists are becoming increasingly focused on industry sectors which require multiple rounds of financing for an extended time horizon. Companies in areas such as clean technology and life sciences require significant capital and expertise often over a 10 to 12 year period, resulting in more follow on rounds, higher average investment levels, and a longer average time to a successful exit. This is not to suggest that the venture capital industry will abandon shorter term IT investment. Rather, the mix of investments will become much more balanced."  

Overall, quarterly investment activity increased 17 percent in terms of dollars, but fell 3 percent in number of deals compared to the second quarter of 2009 when $4.1 billion was invested in 657 deals. "The Life Sciences sector (biotechnology and medical device industries combined) had a solid quarter relative to other industry sectors, leaving Software as the third highest investment sector, a notable decline in industry ranking," the analysts reported.

- check out the NVCA release for more analysis