The just released PricewaterhouseCoopers National Venture Capital Association MoneyTreeTM Report for 2Q-2011 contains some very revealing information about the amounts and types of companies venture capitalists (VCs) are investing in.
VCs opened their wallets and invested $7.5 billion in 966 deals in 2Q-2011. That was an increase of 19% in terms of both dollars and the number of deals compared to the first quarter of 2011 when $6.3 billion was invested in 814 deals. The quarterly investment level represents the highest total in a single quarter since the second quarter of 2008.
Internet Companies are Hot (or in Bubble 2.0)
Here’s an Eye Opener: Investment in Internet-specific companies surged in the second quarter with $2.3 billion going into 275 companies. That’s about one third of all VC money invested this quarter! It represents a 72% increase in dollars and a 46% increase in deals from the first quarter when $1.4 billion went into 189 deals. The second quarter marks the most dollars going into Internet-specific companies in a decade, since the second quarter of 2001!
Five of the top 10 deals this quarter, including the top two deals, were classified as Internet-specific investments, which is a discrete classification assigned to a company with a business model that is fundamentally Internet based, e.g. e-commerce, on line games or daily coupons, social networking, etc. These are generally software companies which have nothing at all to do with the underlying Internet infrastructure that they use to generate revenues (and hopefully profits).
Telecom and Networking Start-ups Continue to Suffer
In sharp contrast, there were only 29 deals totalling $169M invested in Telecom start-ups of all types (wireless, wireline, metro, WAN, etc). That was down from 35 deals worth $188M in the 1Q-2011 and basically flat from one year ago.
Networking and equipment companies fared even worse. They received only $115M in 21 deals in 2Q, which was flat from 1Q but DOWN from $303M in 24 deals one year ago!
Telecom combined with networking & equipment only accounted for 3.7% of all 2Q-2011 investments- an insignificant percentage, especially when compared to Internet related companies. As we have pointed out in several other articles, this does not augur well for future Internet infrastructure or for technology innovation in general.
Seed and Early stage investments do OK
These rose 24 percent over the prior quarter in both dollars and deals with $2.4 billion going into 464 deals in the second quarter.
The average Seed deal in the second quarter was $3.2 million, up from $1.8 million in the first quarter. The average Early stage deal was $5.8 million in Q2, down slightly from $6.0 million in the prior quarter.
TiE Angels to the Rescue of Smaller Start-Ups (that don’t need multi-$ Million in funding)
But what if a relatively new company needs less than several million dollars in an investment round? Whom do they turn to, besides family and friends? The VCs will generally not touch smaller seed or early stage companies, which are not even on their radar screen. The answer is to look for Angel investors in general and TiE Angels in particular.
Just one year old this month, TiE Angels has funded 10 deals from over 160 companies that have applied for funding. The average deal is in the range of $200K to $650K, which is enough for many non-capital intensive start-ups to keep going. Approximately 80 individual investors are enrolled in TiE Angels with about 60 to 70% attending monthly meetings where three or four start-ups make short presentations followed by Q and A.
What’s unique about TiE Angels, is the combination of structure, process, discipline, depth of knowledge and domain expertise of members. There are 9 individuals on the TiE Angels steering committee, which does first level screening of the start-up companies that apply for funding. Here are two recent articles about TiE Angels:
Stay Tuned for Second Article – TiE Angels Checkup
Part 2 of this series will examine the methods, procedures, and investments that TiE Angels have made since their inception. It will be very informative for both start up companies seeking funding, would be angel investors, as well as VCs who are potentially missing out on the action and innovation these companies will bring to market.