First quarter 2013 slow for venture funding, but software still shines

Venture capitalists continued to put money into software and media ventures, but have backed away from clean technology and life sciences in the first quarter of 2013.

Venture capitalists continued to put money into software and media ventures, but have backed away from clean technology and life sciences, a new analysis of first-quarter 2013 funding shows.

Photo credit: Joe McKendrick

That's the conclusion of the latest MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.

Totals for investments were down from the previous quarter. Quarterly venture capital investment activity fell 12% in terms of dollars  -- from $6.7 billion in Q4 to $5.9 billion in Q1. In addition, the number of deals dropped -- from 1,013 in Q4 to 863 in Q1.

Software was a bright spot in the investment picture for Q1. Funding for software companies rose eight percent from the prior quarter, to $2.3 billion invested during the first quarter of 2013, marking the fourth consecutive quarter of more than $2 billion invested in the sector, the report shows. Overall, software accounted for 40% of all investments during the quarter.

The media and entertainment sector experienced a 37% increase during the quarter, which was primarily due to one large single large deal, the third largest in Q1 -- a $200 million injection of cash to expand Pinterest, the social photo-sharing site. Overall, venture capitalists also  invested $1.4 billion into 231 Internet-specific companies during the first quarter of 2013, but this represented a drop of 11% lower in dollars, the report states.

The life sciences (biotechnology and medical device industries combined) and clean tech sectors both saw marked decreases in both dollars and number of deals in the first quarter. Funding for biotechnology ventures fell 33%, and investments in medical devices and equipment enterprises dropped 20% quarter to quarter.

The clean technology sector, which includes alternative energy, pollution and recycling, power supplies and conservation, declined 35% in dollars in the first quarter, the report adds. The relative decrease in investments here was driven by the "lack of any large deals in the sector during Q1," the report states.

The biggest deal of the quarter was a $343 million investment in Genband, a networking systems and equipment vendor.

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