VCs invest in fewer startups

April 21, 2010

So far this year both the number and size of deals by venture capitalists are down over the final quarter of 2009.

A total of 681 deals for $4.7 billion were completed by VCs in the first quarter of 2010, according to a MoneyTree Report released by the National Venture Capital Association and PricewaterhouseCoopers. That dollar amount is down about 10 percent over Q4 2009, but up nearly 40 percent over the same period last year.

Dan Primack, the editor of PE Hub – a Thomson Reuters publication – told Reuters TV the decline from Q4 ’09 was mostly “seasonal” and he expected the numbers to increase over the next quarter, as VC firms secure funding from investors and more term sheets are signed.

Some potentially troubling news for entrepreneurs trying to raise money for startups, was that VC investment in early-stage companies was down nearly 35 percent, while so-called expansion-type deals were up nearly 15 percent over Q4 2009.

Primack said the decline may just be a reflection of more angel investors funding startups, leading to a decrease in VCs participating, but not an actual overall decrease in the number of seed or early stage deals being done.

“I think you’re seeing a sea change in who’s making the deals,” Primack told Reuters TV, adding that the MoneyTree report only tracked deals by institutional investors and not individuals such as angels. “What we’re starting to see a lot in seed and early stage deals is a lot of angel activity; rich individuals who are making these transactions and priming the pump for the Series A or Series B round. We’ve seen a huge influx in those sorts of investments and I think in many cases these angels, and some of these so-called super angels on the West Coast, are supplanting some of the traditional venture capital firms at the early stage.”

Watch Reuters TV’s full interview with Dan Primack:

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