VC Deals In Charts (Q2 2008)—Exits? We Don't Need No Stinkin' Exits?

Second quarter data is out on venture deals from the National Venture Capital Association and PriceWaterhouseCoopers. Despite the IPO market drying up completely, the What-Me-Worry crowd on Sand Hill Road keep pumping money into venture deals at a steady pace. Venture capitalists invested $7.4 billion last quarter in 990 deals, compared to $7.5 billion in 997 deals during the first quarter (a number that looks like it was revised upwards from the $7.1 billion the same group originally reported last April). The average deal size last quarter was $7.5 million. (Click on the charts for bigger images).

The amount of money going into first-time financings is declining, with only 22 percent of VC money going to early stage deals. Late-stage and expansion deals are attracting more capital, a trend we saw last quarter as well. These deals are generally deemed more safe than first-time deals since these companies are further along and some of the early risks have been taken off the table.

Software is still the biggest sector attracting VC funds ($1.3 billion), followed by biotech ($1.1 billion), but both those sectors are seeing a slowdown in investments (down 19 percent and 14 percent year-over-year, respectively). The only sectors that saw increases was energy (up 102 percent year-over-year to $1.2 billion) and media (up 23 percent to $586 million).

There were a couple of bright spots in the report. Drilling down into Internet-specific and clean tech deals, VC optimism seems to be holding for now. They invested $1.5 billion in Internet deals, up 14 percent from last quarter. Clean tech financings were pretty much flat at $884 million.

If the IPO and M&A drought continue, it should have a deeper impact on current funding levels. But there is usually a lag period between the former going down and VCs waking up to the fact that the environment has changed (the two have been linked historically, despite current investments having a five-to-seven year horizon).