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Venture Capital Activity Crosses $20B for 2009. Q4 2009 Sees $5.5B of Funding with Year’s Highest Number of Deals.

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Our entire 29 page, downloadable Q4 VC activity report is embedded at the end of this post.

Given persistent levels of misinformation and confusion about venture capital data, we encourage you to review our methodology and definitions to better understand the numbers presented in our Q4 2009 venture capital activity data and commentary.

Oh what a difference a year makes. 

In Q4 2008, we tracked $5.9B of venture funding, but against the backdrop of economic & equity market tumult, many pundits were predicting this number was indicative of the demise of the venture capital asset class.  Q4 2009 sees funding levels of $5.5B and despite a decline versus the year ago quarter, the psychology and sentiment underlying the number couldn’t be more different.  Yes, optimism, albeit of the cautious variety, seems to have found its way back. Q4 2009 saw VC activity hit $5.5B spread across 687 deals according to ChubbyBrain’s venture capital database.  ChubbyBrain is an information services company tracking high growth private companies and investors.  687 deals is the most activity in a single quarter in the last five quarters.

On a sequential basis, the news was generally good.  There was modest growth in the number of deals as they grew from 678 to 687 in Q4 2009.  On a dollars invested basis, the quarter was down versus Q3 but this was primarily due to a handful of very large deals in Q3 which served to drive up the totals significantly coupled with decreased investment in Q4 2009 in capital-intensive areas like green tech.

Q4 2009 highlights include:

Finishing Strong: Unlike Q3 which saw a spike in activity in September, this quarter was generally more consistent month to month.  The quarter ended strong with December seeing the most deals as investors seemingly hurried to get deals done before year-end.  With recent promising news about venture exits via M&A, will the momentum carry into 2010?

Green Goes Lean:  As mentioned, green investments which are usually a significant contributor to the overall venture totals given their capital intensity fell significantly versus Q3 with investment funding dropping 38% even though deal count stayed steady.

Blazing Internet:  Investment into the internet sector jumped 40% vs. the prior quarter on 17% more deals. 

Early Stage Still Growing:  For the last two quarters, we’ve noted that early stage investment has been healthy despite many speculating that early stage would suffer as VCs pulled back on investing.  Q4 2009 continued to show early stage investment strength with 21% of dollars and 37% of deals being into early stage companies versus 13% of funding and 29% of deals going to early stage in Q3 2009. 

California Slips a Bit:  From the master of the obvious file, the Golden State dominated yet again racking up 48% of the total funding and 44% of the total deals.  But, funding going to California did drop 21% vs. the prior quarter. Rounding out the top five in terms of VC dollars were Massachusetts, New York, Texas and New Jersey.

Empire State of Mind:  With a drop to fourth place in Q3 2009 behind Texas, New York came back and solidly reasserted itself into the top three VC states with $285M spread across 41 deals.  New York edged out Massachusetts in internet investments, but Massachusetts with its robust healthcare investment community continued to be solidly in second place behind California in total VC funding.

New Jersey Jets to Top Five: On the back of several later stage pharma deals, the Garden State jumped into the top 5 crowding out normal challengers Washington, Pennsylvania and North Carolina.

Healthy Living:  Unlike greentech, the capital intensive healthcare sector saw the most investment dollars of any individual sector representing 33% of total funding.  Investments into internet companies followed with 27% of investment.  Technology-oriented sectors (internet, mobile & telecom, software and computer hardware software) collectively accounted for nearly 50% of total funding.

Q4 2009 Venture Capital activity hits $5.5B. 2009 Crosses $20B Mark. Internet and early-stage activity quite strong.

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