(Source: MARKETWIRE)Venture capitalists invested $4.8 billion in 637 deals in the third quarter of 2009, according to the MoneyTree(TM) Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Quarterly investment activity increased 17 percent in terms of dollars, but fell 3 percent in number of deals compared to the second quarter of 2009 when $4.1 billion was invested in 657 deals. The increase in dollars invested was driven by several large rounds in the Clean Technology sector, one of which is the ninth largest deal since 1995. The Life Sciences sector (biotechnology and medical device industries combined) also had a solid quarter relative to other industry sectors, leaving Software as the third highest investment sector, a notable decline in industry ranking.

"The increase in venture capital investing this quarter is very encouraging," noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers LLP. "With the signs pointing to an economic recovery, albeit a slow one, we're likely to see the pace of investing continue to strengthen over the next several quarters as long as the IPO markets begin to open up and M&A activity increases. And, as predicted last quarter, we expect to see annual investments for 2009 exceed the $15 billion mark given the continued strength we saw in investing this quarter."

"The third quarter illustrates a gradual and deliberate industry shift towards a longer term venture capital investment strategy," said Mark Heesen, president of the NVCA. "Venture capitalists are becoming increasingly focused on industry sectors which require multiple rounds of financing for an extended time horizon. Companies in areas such as Clean Technology and Life Sciences require significant capital and expertise often over a 10 - 12 year period, resulting in more follow on rounds, higher average investment levels, and a longer average time to a successful exit. This is not to suggest that the venture capital industry will abandon shorter term IT investment. Rather, the mix of investments will become much more balanced."

Industry Analysis

The Biotechnology industry received the highest level of funding for all industries in the quarter with $905 million going into 104 deals. This level of investment represents a 4 percent decrease in dollars and a 16 percent increase in deals compared to the second quarter when $947 million went into 90 deals. Medical Devices and Equipment saw a 6 percent decline in dollars and 15 percent decline in deal volume in the third quarter with $617 million going into 71 deals. This sector ranked fourth overall for the quarter.

While the Software industry had the most deals completed with 128 rounds, it fell to third place in terms of dollars invested at $622 million, representing a 9 percent decrease in both dollars and deal volume from the second quarter when $680 million went into 141 rounds. The drop in dollars in the third quarter puts Software at its lowest level of investment since the third quarter of 1996.

The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw an 89 percent increase in dollars over the second quarter to $898 million. The number of deals completed in the third quarter increased 16 percent to 57 deals compared with 49 deals in the second quarter. The increase in Clean Technology investments was driven by several large rounds, including three of the top 10 deals.

Internet-specific companies received $843 million going into 148 deals in the third quarter, a 42 percent increase in dollars and a 15 percent increase in deals over the second quarter of 2009 when $594 million went into 129 deals.