Trendwatch
Inc. staff and Daniel Wolfman
 

Total dollars invested through venture capital dropped 12 percent in the third quarter of 2011 compared to the previous quarter, according to an October report from Pricewaterhouse Coopers and the National Venture Capital Association. While the venture capital market is up so far this year relative to 2010, the drop-off in the third quarter is likely related to the general uncertainty in financial markets.

Particularly hard hit were start-ups looking for seed funding from early-stage VCs and angel investors. There was a 56 percent downturn in quarter-over-quarter dollar activity for those companies. Naval Ravikant, the founder of AngelList, an online forum that matches start-ups with angel investors, told The Wall Street Journal recently that the start-up investment market is "getting weaker by the week." While 50 to 100 start-ups apply for funding through his site every day, he says only one or two receive financing.

How bad is it out there? In this week's TrendWatch, Inc.com’s Daniel Wolfman spoke with Jeff Bussgang, general partner at Boston VC-firm Flybridge Capital, and an entrepreneur himself. (Bussgang co-founded Upromise, which was sold to Sallie Mae in 2006). Despite the data, Bussgang says he is seeing a surge in entrepreneurial activity right now. Bussgang, who last year wrote Mastering the VC Game: A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms, also offers pointers how to raise money--even in the current VC market.

In this week’s TrendWatch Facts & Figures, a closer look at the venture-capital data from the recent Pricewaterhouse Coopers and NVCA report.

  • The amount of money invested through venture capital in third quarter was $6.95 billion, down 12 percent from $7.9 billion in the second quarter of 2011.
  • The number of venture-capital deals completed in the third quarter decreased, too. There were 876 deals, down 14 percent from 1,015 deals in the second quarter.
  • Start-ups have been the hardest hit in the recent VC shortfall. The average third quarter seed deal was $2 million, down 43 percent decrease from $3.3 million in the second quarter. Expansion stage deals fared better, increasing two percent quarter-over-quarter.
  • New York City has been a pocket of opportunity. VC investments have risen in New York for five straight quarters including the third quarter of 2011, when New York companies raised $891 million, the largest amount since the first quarter of 2001.