Silicon Valley venture capital investment drops 22 percent

It's the worst quarter for VC deals since 2009, according to a new report.
Written by Andrew Nusca, Contributor
Photo: TaxCredits/Flickr

In the second quarter of 2013, venture capitalists based in Silicon Valley invested $2.66 billion across 305 deals—a 22 percent decline from the same time a year ago and the least amount of investment since 2009, according to a new report from the National Venture Capital Association.

Despite this, California's tech hub still represents the lion's share of venture capital in the U.S., accounting for about 40 percent of the nation's total. According to the NVCA's figures, U.S. venture capitalists invested $6.6 billion in 913 deals during the quarter, a nine percent drop from the same period a year prior. 

Here's a look at the numbers for Silicon Valley VC investment, year over year, per the Silicon Valley Business Journal's Luke Stangel:

  • 2Q13: $2.66 billion (average deal size: $8.73 million)
  • 2Q12: $3.41 billion (average deal size: $10.52 million)
  • 2Q11: $3.18 billion (average deal size: $9 million)
  • 2Q10: $3.21 billion (average deal size: $10.17 million)
  • 2Q09: $1.87 billion (average deal size: $8.23 million)

Why the drop? The organization suspects that venture capitalists are making smaller investments per company "as the price of building a technology company continues to fall."

More figures of interest:

  • Software companies received the highest level of funding, $2.1 billion, despite a seven percent drop quarter over quarter. The category also had the most deals, at 325.
  • Biotechnology companies represented the second-largest share of investment, with $1.3 billion across 103 deals. That's a 41 percent increase in dollars quarter over quarter.
  • IT Services companies were the third-largest slice of the pie, with $654 million across 88 deals.
  • Clean technology companies raked in $364 million across 43 deals. It's the six consecutive quarter of declining investment for this group.
  • A number of traditional computing categories also took big hits: Networking and Equipment was down 69 percent, Computers and Peripherals was down 51 percent, Semiconductors was down 30 percent. 
  • Finally, venture capitalists invested $1.9 billion in 270 Internet-specific companies, the term for a company "with a business model that is fundamentally dependent on the Internet," regardless of sector or industry. It's the first time in five quarters that this group has experienced an increase in investing levels.

"In many ways, it feels like the late 1990s, with information technology driving venture investment and significantly outpacing other sectors when it comes to level of activity and momentum," NVCA president Mark Heesen said in a statement, adding that IT investing will "continue to be the bedrock" of VC investment. "The difference, however, is where we go from here."

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