While VC funding holds steady, look at the trend to see where the money is moving

Implications: Many recent articles have argued and discussed the slowdown in VC funding; from Austin Ventures' recent investor funding return to misguided year-over-year statistics that truly point to an IPO slowdown.  The title of this article is misleading, as the content points towards a more meaningful outcome.

Analysis:

So it appears year-over-year investment by venture capital firms, whether a stand along company or a branch of a large hi-tech corporation, has been consistent in forging ahead with pledged capital.  But the real story in this article is where the funds are going. Here’s the rundown-

Biotech down 5% at $1.1B (18% of dollars invested)

Software down 19% at $1.1B

Internet received another $1.1B (17% of the vesting market)

Medical Devices increased 12% to $640M

Energy had a 6 year high at $575M

Telecomm had a 4 year high at $850M

The significance is Biotech is ranked first for total invested, jumping over software; while software received the lowest funding level in 10 years.  Why the movement? While for one, many software companies are moving toward hosted platforms, which count toward internet funding.  Secondly, the biotech industry usually requires large, long-term investments for development.  It will be interesting to watch the energy sector, as fuel pricing have recently begun to cool.

Further, statistics point towards an increase in early start-up companies (up 10%), while expansion stage (B-round) fell 10% year-over-year, and late stage fell 13% for the same period.  It appears that with exit strategies changing from IPO to acquisition, attention has turned towards the young fledgling that has increased the most valuation with the growth of the company.

While some of these statistics can be misleading due to overlie of sectors, what will be interesting to watch is if this trend continues.