Venture Investors Pull Back in First Quarter, Shift Dollars to Later Stage

Venture capitalists pulled back in the first quarter, investing $5.8 billion in 758 deals and shifting money to later-stage companies ahead of an improving IPO market.

Investments fell 19% in dollars from the fourth quarter and deals slipped 15%, according to the MoneyTree Report from PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters, publisher of this blog.

The quarter saw a shift to later stage, the only stage of development with an increase. Later-stage investments rose 11% from the fourth quarter to $2.3 billion and accounted for 40% of total dollars, compared with 29% in the fourth quarter.

Early-stage investing fell sharply after a strong 2011. Dollars invested were down 31% to $1.6 billion and deals fell 24%, according to the report. Expansion-stage investments were off significantly, too.

Most industry sectors saw declining interest during the three months. One exception was medical devices and equipment. Software, the largest industry segment, saw investments fall 18%. Dollars going to Internet-focused companies fell 3%, but still broke the $1 billion mark for the eighth quarter in a row, the investment survey found.

Biotech investments fell 43%, and cleantech activity slumped 30% to $951 million.

In contrast, the medical devices and equipment sector experienced a 33% increase in dollars invested, even though the number of deals fell.

Top deals in the quarter included the $238 million round for SquareTrade, an independent provider of warranties, and the $139 million round for Sapphire Energy, a developer of algae-based oil. Electric carmaker Fisker Automotive brought in $129.7 million of new money, with Kleiner Perkins Caufield & Byers and New Enterprise Associates participating in the deal.

Some venture capitalists said the strong level of later-stage deal activity could continue. “It’s very much tied to what’s happening in the capital markets overall,” said Maria Cirino, managing director at .406 Ventures. “Assuming the IPO market continues to stand up, then, yes, it will continue.”

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