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US venture investment declines in second quarter

US-based companies raised USD8.1bn through 863 venture capital deals during the second quarter of 2012, a nine per cent decline in capital and three per cent decline in deals from the same period last year, according to Dow Jones VentureSource.



Through the first six months of the year, venture capital investment totalled USD15.3bn for 1,595 deals, a seven per cent decline in capital and five per cent decline in deals from the year-ago period.

"IT and internet investment has been steady but interest in capital-intense industries like healthcare and energy is fading," says Brendan Hughes, director of information analysis for Dow Jones VentureSource. "The unpredictable environment for IPOs – the traditional exit for biopharmaceuticals companies – has entrepreneurs and investors struggling to find new business models. In energy, investors are favouring smaller technology plays rather than big investments in solar or biofuels."

The median amount invested in a financing round was USD5m in the second quarter of 2012, on par with the same period last year.

The share-price declines of Groupon, Facebook and Zynga after high-profile public debuts have not deterred investors from committing capital to young Internet companies. Investment in consumer internet companies, which includes social media, entertainment and shopping aggregators, rose to USD967m raised for 134 deals during the second quarter, a 27 per cent increase in capital and 14 per cent increase in deals from the same period last year.

"Alongside the headline-grabbing IPO flops there have been several internet IPOs that performed well following their public debuts. The successful IPOs of Yelp, Brightcove and LinkedIn are helping fuel the continued interest and investment in this sector," says Zoran Basich, editor of Dow Jones VentureWire.

Information technology companies raised USD2.4bn for 286 deals in the second quarter, a slight change from the same period last year when USD2.5bn was put into 296 deals. Software continued to be the primary driver of deals and investment, as 218 deals raised USD1.6bn, a two per cent decline in deals and a two per cent increase in capital from the second quarter of last year.

In the second quarter, healthcare companies raised USD1.5bn for 161 deals, a 33 per cent decline in investment and 15 per cent decline in deals from the same period last year.

Investment in biopharmaceuticals companies fell significantly as 54 deals raised USD570m in the second quarter, a 22 per cent decline in deals and 43 per cent decline in capital invested. Also during the second quarter, medical device companies raised USD653m for 67 deals, a 33 per cent decline in investment and 22 per cent decline in deals.

The only bright spot in the healthcare industry was health IT, which is benefiting from interest in technologies that manage health information and data. Health IT companies raised USD268m for 29 deals in the second quarter, a 33 per cent increase in capital raised and 45 per cent increase in deals.

The second quarter the worst for investment in energy and utilities start-ups since the first quarter of 2009. During the second quarter, USD293m was raised for 25 deals, a 56 per cent decline in capital and 32 per cent decline in deals from the same period last year.

As usual, renewable energy companies accounted for most of the deals, raising USD211m through 18 deals.

Deals for business and financial services start-ups fell three per cent but capital invested rose 14 per cent as 139 deals raised USD1.7bn in the second quarter. Investment in this area is largely driven by interest in data management, marketing and advertising companies.

Early-stage deals captured 45 per cent percent of deal flow and 23 per cent of capital invested during the second quarter, up from the second quarter of last year when these deals accounted for 43 per cent of deals and 19 per cent of capital raised. Second rounds accounted for 18 per cent of deals and 17 per cent of capital, down from the year-ago period when these rounds accounted for 20 per cent of deals and 22 per cent of capital invested. Later-stage deals accounted for 35 per cent of the quarter’s deals and 59 per cent of total capital raised, a change from last year when later-stage rounds captured 34 per cent of deals and 55 per cent of the capital invested.

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