Blog of Intellectual Capital

Sure the economy is coming back from the slump, but this article from InternetNews brings some hard reality checks.

“Total venture capital spending increased 17 percent in the third quarter to more than $4.8 billion, but investments in privately held software companies fell to its lowest level since 1996.

Thanks mainly to its relatively low initial startup costs and its home run potential in the equities market, the software sector for years has either ranked first or second in total VC spending.

But it fell to No. 3 among investment sectors last quarter, according to the latest MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association.”

Biotech firms, which checked in with the most total dollars garnered in the quarter at $905 million, closed 104 deals in the quarter. In the second quarter, biotech upstarts received a total of $947 million—a 4 percent decrease—but the total number of financing rounds closed surged up 16 percent from 90 deals.

Clean technology, which includes companies focused on alternative energy, pollution, recycling and power supplies and conservation was next with $898 million in VC investments, up an impressive 89 percent from the prior quarter.

Software firms did close the most deals in the quarter (128 rounds) but fell to third place in overall investments at $622 million, down 9 percent in both dollars and deal volume from the $680 million and 141 deals closed in the second quarter.

“The third quarter illustrates a gradual and deliberate industry shift towards a longer term venture capital investment strategy,” said Mark Heesen, president of the National Venture Capital Association. “Venture capitalists are becoming increasingly focused on industry sectors which require multiple rounds of financing for an extended time horizon.”

Software’s loss was a boon for the biotech, medical devices and clean technology sectors.”

Read the whole article here.