Call It What You Will: Investors are Definitely Pulling Back

Blame it on an innovation stall, or investor boredom, or firms less willing to pay through the nose to access the companies they view as most promising. Either way, a fall-off in the amount of money being plugged into companies is real, according to Preqin, the private equity data provider.

How real? Well, the amount of capital poured into deals in 2012 was $39.1 billion, down from $50 billion in 2011. That’s 22 percent; it’s a massive difference.

Deal value fell across the board, in fact, though later-stage deals appear to have been impacted the most. Preqin reports that the average value of Series C deals dropped from $25.2 million in 2011 to $21 million last year, and that the average value of Series D and later deals plunged from $38.6 million to $31.4 million.

There’s always a silver lining, though. In this case, while investors have pulled back on the amount of money they’re willing to gamble, they haven’t stopped writing checks, evidently. In fact, 13 percent more venture deals were announced last year than in 2011, when bloated financings of later-stage companies made almost weekly headlines. (The Groupon round that led the year wound up defining it, in many ways.)

One thing that didn’t change much in 2012: Internet companies received a higher number of financings than startups in any other industry, representing 27 percent of all deals in the fourth quarter globally. Among the biggest Internet-based recipients of venture capital in the latter part of the year: the payment processing company Square, which raised $200 million, including from Citi Ventures and Starbucks Coffee Company and Rizvi Traverse Management; FlipKart, the India-based online shopping site, which raised $150 million from Accel Partners, Iconiq Capital, Naspers, and Tiger Global Management; and the online sports merchandise retailer Fanatics, which raised $150 million from Andreessen Horowitz and Insight Venture Partners.

Photo: Illustration of lemmings courtesy of Shutterstock.

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