Investments by venture capitalists in new companies increased dramatically last year, both nationally and in New England, where biotechnology funding led a rebound during the final quarter of 2011.
Venture firms invested $28.4 billion in 3,673 US deals in 2011, an increase of 22 percent in dollars and a 4 percent rise in the number of deals compared with the prior year, according to the MoneyTree Report by PricewaterhouseCoopers LLP and the National Venture Capital Association, based on data from Thomson Reuters.
New England companies also attracted more venture investments: $3.2 billion, up from $2.6 billion in 2010.
The New England showing was boosted by a strong fourth quarter, when venture investment rose from $690 million in the third quarter, to $777.4 million in the last three months of 2011. Driving that growth were investments in biotechnology companies, which surged to $386 million in the fourth quarter, up from $229 million during the previous quarter. Biotechnology firms accounted for 50 percent of all the venture money invested in New England from October through December, and seven out of the top 10 New England deals were in the sector. The largest New England funding deal during the fourth quarter, $78 million, was raised by Agios Pharmaceuticals Inc., a Cambridge company that is developing cancer drugs.
“New England had a very good year, and biotechnology really carried the day for us,’’ said Kevin Shaw, partner in PricewaterhouseCoopers’s emerging company services practice in Boston. “The combination of our teaching hospitals, universities and venture capitalists who know biotech - that adds up to a strong cluster.’’
Polaris Venture Partners, based in Waltham, led all New England VC firms in investments in the fourth quarter, with 13 deals.
Alan Crane, a Polaris general partner, said that the large amounts of money flowing into area biotechnology firms represent “a maturation of some promising companies that are now at the stage where they can attract significant dollars.’’
Crane added, however, that early stage biotechnology companies are having difficulties attracting funding.
“That’s a concern,’’ he said, “because those young companies, just emerging from university labs, are the lifeblood of the industry.’’
Nationally, the software industry maintained its status as the single largest investment sector for the year, with dollars increasing by 38 percent over 2010 to $6.7 billion in 2011. That money was invested in 1,004 deals, a 7 percent rise in volume over the prior year.
Software investment was also big in New England, the second largest category after biotechnology. The sector had a particularly strong fourth quarter, attracting $185 million - more than double the $88 million invested in the third quarter. Venture investments in software comprised 24 percent of the total amount of such funding in the region in the last quarter of 2011.
Biotechnology investment dollars also increased nationally in 2011, up by 22 percent, with $4.7 billion going into 446 deals. That made it the second largest investment sector for the year in terms of dollars and deals. For the fourth quarter, biotechnology investing increased by 10 percent in dollars compared with the previous quarter, and the number of deals rose by 6 percent, with $1.3 billion going into 111 rounds. The life sciences sector (biotech and medical devices combined) accounted for 27 percent of all venture capital dollars invested in 2011 nationwide.
The clean-technology sector grew by 12 percent in both dollars and deal volume last year, with $4.3 billion going into 323 deals, compared with $3.8 billion and 289 deals in 2010. Clean-tech includes alternative energy, pollution and recycling, power supplies and conservation.
Internet companies also saw a substantial increase in investing in 2011, with $6.9 billion allocated to 997 deals, a 68 percent increase in dollars from 2010 when $4.1 billion went into 807 deals. Last year marked the highest level of Internet investment over the past decade. Internet-specific firms - those whose business models are fundamentally dependent on the Internet - accounted for 24 percent of all venture capital dollars in 2011, up from 18 percent in 2010.
Venture investing in the New York metropolitan area - which in the third quarter pushed ahead of New England to claim the distinction as the second largest US venture market, after California’s Silicon Valley - fell dramatically in the fourth quarter, to $545 million, from $909 million during the previous quarter. For the year, the metropolitan area finished with a total venture investment of $2.7 billion, a distant third to Silicon Valley’s $11.6 billion, and New England’s $3.2 billion.
D.C. Denison can be reached at email@example.com.