Thumbnail: 

Venture capitalists from around the world invested $9.8 billion into 967 deals for companies based in the U.S., Europe, Canada, Israel, Mainland China and India during the first quarter of 2011, according to Dow Jones VentureSource. This represents a 20% jump in investment but a 7% decline in deal activity from the same period in 2010 when $8.2 billion was raised for 1,038 deals.

“In an increasingly globalized industry, capital can move quickly between regions to follow the most promising start-ups,” says Jessica Canning, global research director for Dow Jones VentureSource. “However, any shocks to the local liquidity markets will quickly drive capital away or cause investors to put everything on hold. Given the uneven nature of IPOs and acquisitions right now, I believe we’re seeing a bit of both.”

In Asia, investment in China and India focused on consumer companies.

During the first quarter of 2011, venture investors put $1.4 billion into 62 deals for companies in Mainland China, representing a 3% decline in investment and 7% decline in deal flow from the same period in 2010. The median deal size hit a record high of $15 million, a 20% increase over the same period last year when the median was $12.5 million.

The consumer services industry raised $759 million for 36 deals in the first quarter, accounting for 55% of capital invested and 58% of deals completed in China. Investment in this industry was largely driven by interest in the consumer information services sector, which includes social media, shopping and search companies. Consumer information services companies collected $592 million for 28 deals, up significantly from the same period last year when 11 deals raised $161 million.

The business and financial services industry suffered a drop in both deal flow and capital invested as $87 million went into 9 deals in the first quarter, a 68% drop in investment and 25% decline in deal activity from the same period last year. Business support services, which benefited from strong interest in advertising and marketing companies, was responsible for closing 80% of capital raised within the industry.

Investment in China’s IT industry was up 64% in the first quarter to $334 million. However, deal flow shrank by 36%, with 9 deals completed in the quarter. The IT industry has seen interest from investors steadily decline. IT companies accounted for 36% of deals completed in China in 2005, when VentureSource began tracking the region, falling to 20% by 2010 and 15% in the first quarter of 2011.

In India, venture capitalists invested $232 million in 26 deals during the first quarter of 2011, a 30% decrease in capital invested but a 30% increase in deal activity. Fifty-eight percent of investment went to consumer services companies, which collected $134 million for 12 deals, a 26% drop in capital from the $182 million raised for 4 deals during the same period last year. The median deal size in India declined 40% to $6 million.

MORE ARTICLES ON CORPORATE FINANCE

Quote Image: