So what’s hot and what’s (mostly) not? A synthesis of where venture funding changes 3Q2011 vs. 3Q2010
An industry analyst from Frost & Sullivan, Ipshita Chakraborty, recently published an interesting article in “Innovation – America’s Journal of Technology Commercialization” www.innovation-america.org that included some interesting numbers tracking venture funding of US startups over three quarters. Lyco Works used Ipshita’s data, re-analyzing it to understand how venture capital dollars shifted between industries and by stage of development as a percentage from 3Q2010 to 3Q2011.
Altogether, Chakraborty reported that venture funding dollars were up: $6.95BN invested in 3Q2011 vs. $5.31BN during the same quarter 2010;- it’s encouraging to see the venture dollar flow increasing. The dollar distribution between early and later stage also shifted subtly year over year, disfavoring very early stage (seed) funding in favor of later product development stages – perhaps reflecting a somewhat reduced appetite for risk, and an increased company valuation due to technology and IP stage of development.
| Startup Product Development Stage | % share total venture funding 3Q2010 | % share total venture funding 3Q2011 |
| Seed | 5.7% | 2.6% |
| Early Stage | 24.4% | 28.3% |
| Expansion | 32.8% | 35.9% |
| Later Stage | 37.1% | 33.4% |
Biggest winners of venture funding in 2011 vs. 2010 were Software, Biotech, and Industrial & Energy. Biggest percentage gain in the same period was in media and entertainment related startups at a 140% increase. The trend to preferentially invest in software based startups – including both web-based and application technologies – continues, with software investments up 79% comparing the same time periods.
Telecommunications, computers & peripherals (hardware), as well as semiconductors topped those startup categories that showed the largest drop in funding when comparing the same two quarters.
| What’s Hot: | Funding in 3Q2011 | Change vs. 3Q2010 |
| Software | $ 2.01 BN | +79% |
| Biotech | $ 1.08 BN | +26% |
| Industrial & Energy | $ 0.75 BN | +75% |
| Medical Devices | $ 0.73 BN | +16% |
| Media & Entertainment | $ 0.68 BN | +140% |
| Mostly Not: | Funding in 3Q2011 | Change vs. 3Q2010 |
| Semiconductors | $ 0.19 BN | -28% |
| Telecommunications | $ 0.17 BN | -74% |
| Healthcare | $ 0.15 BN | -20% |
| Networking & Equipment | $ 0.07 BN | -19% |
| Computers & Peripherals | $ 0.06 BN | -31% |
Software startups clearly were the 300lb gorilla, attracting some 30% of the venture capital funding in 3Q2011. Software companies typically have a low capital and overhead costs, and a comparably short time to market, vs. say biotech companies (15.5% of funding) that may be facing seven years or more to complete approval to market that first product.
Chakraborthy also reports that the US government administration has declared that “Clean & Green” technologies should be prioritized by funding bodies (e.g. Dept. of Defense) for budgeting purposes at this time, including Water, Energy, Advanced Materials, Energy Efficiency, Manufacturing, Transportation, and Agriculture.
These are interesting data. As government entities often fund early stage companies that struggle to secure venture funding, as the “Clean & Green” startups mature, it will be interesting to track future VC funding trends to see if there is an impact on the types of companies winning VC funding in the future.