Venture-capital investments rise in 1st quarter, suggesting optimism that economy is improving

Venture-cap investments rise in 1Q, as optimism up

SAN FRANCISCO — Venture capitalists invested more money in U.S. startups during the first three months of 2010 compared with a year earlier, a sign of increasing optimism that the economy is improving.

Last year, the sluggish economy made it harder for startups to find buyers or complete initial public offerings. That meant venture capitalists had a harder time seeing returns on their investments, so they had been less likely to invest in new companies.

But a study scheduled for release Friday found that startup investments in the January-March period, while down 10 percent from the previous quarter, rose 38 percent from a year earlier to $4.7 billion. The amount invested was divided among 681 startups, a 7 percent increase from the same three months in 2009.

“I think that we are likely to see at least moderate pickup in investment activity as we go through the year 2010,” said Bill Wiberg, a general partner at Advanced Technology Ventures.

He said that growth should happen across different sectors, including clean technology and information technology. He also predicted that the market for acquisitions and IPOs will improve, which would breed optimism and help lead to new investment activity.

The study was conducted by PriceWaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.

As in past quarters, biotechnology startups received the most funding during the first three months of 2010, with $825 million in investments, up 31 percent from the same period last year.

Although investments in that sector declined last year, venture capitalists have continued to invest heavily because large pharmaceutical companies are still interested in buying startups that are developing promising drugs.

Investments in software companies dipped 1 percent to $681 million, and investments in clean technology companies more than tripled to $773 million.

Money allocated to first-round financing rose 38 percent from the first quarter of 2009 to nearly $1 billion. This went to 208 first-time deals — up from 162 a year earlier, though down from 243 in the fourth quarter of 2009. These deals were mainly with companies in the seed and early stages of development, which is consistent with past activity and shows investors continue to be optimistic about funding new ideas.

The largest deals in the quarter included $115 million invested in electric vehicle maker Fisker Automotive Inc. and $100 million invested in investment management service company High Tower Advisors LLC.