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Venture capital funding and deals rise in 2010

Companies in the U.S. received $26.2 billion in 2,799 venture capital deals, an 11% increase in funds from the year before and a 6% increase in deals, a Dow Jones VentureSource report says.

January 24, 2011|By Tiffany Hsu, Los Angeles Times

U.S. venture capitalists began to dip back into their pockets in 2010 after sitting tight the year before, but the number of deals made and the amount invested still trailed pre-recession levels, according to the Dow Jones VentureSource report.

Companies around the country scored $26.2 billion in 2,799 venture capital deals — an 11% increase in funds from the year before and a 6% increase in deals — according to the report released Monday.

Even with the lift, investment is still lagging behind the period from 2006 to 2008, when venture capitalists stuffed more money into more agreements. In 2007 alone, the investors funneled $33.9 billion into 3,034 deals.

The venture capital industry is in a right-sizing process as it attempts to find a balance between backing innovation and managing risk, said Jeff Grabow, western regional director of venture capital for Ernst & Young.

"The industry is finding its footing about how big it should be," Grabow said.

The venture capital resurgence, however slight, has yet to have much effect in California. Companies in the state got 1,098 deals in 2010, nearly the same as in 2009. The deals last year were worth $12 billion, an increase of about $1.2 billion.

Still, California led the country in venture capital deals and funding in 2010, leaving runners-up Massachusetts and New York far behind with less than 300 deals and not quite $2.5 billion each.

As it has for years, the San Francisco Bay Area left the Los Angeles region in the dust. Although the recession whittled away at investment in the Northern California hub , companies there still managed to land 820 deals worth $9.5 billion, with about a third going to the information technology sector.

Venture capital investment in the Los Angeles region — which includes Los Angeles, Riverside, San Bernardino and Ventura counties — was down for the fifth year in a row. In 2010, there were 115 deals in the area worth $961.7 million.

Nationally, the software segment led in venture capital investments, pulling in $7.2 billion across 889 deals, up $500,000 and 31 deals from 2009.

Consumer services companies also had a good year, drawing 67% more capital and 23% more deals in 2010 for a total of $4.4 billion from 483 deals. The consumer information services field — which includes Internet firms such as Groupon Inc., Zynga Inc. and Facebook Inc. — generated the bulk of that growth.

Investors poured $2 billion into 94 deals with renewable energy companies in 2010, up $500,000 and nearly 20 deals.

Tom Soto, managing partner of Los Angeles-based Craton Equity Partners said it was another sign of the "corporatization of clean-tech." His group specializes in green companies.

"Even during the heat of the recession, this was a sector that was the silver lining on this dark cloud of economics," Soto said.

tiffany.hsu@latimes.com

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