Venture stats ‘look grim,’ peHub warns – Dollars, deals down; early-stage deals dip

RESEARCH TRIANGLE PARK, N.C. - Daniel Primack, one of the most closely followed private equity journalists and who writes for Thomson Reuters’ peHub, is warning that third quarter venture capital funding and the number of deals will be sharply lower than in the second quarter.

Primack also says that statistics are likely to show VCs are flocking to existing investments, not new ones.

One need look no farther than the Triangle to verify the larger later-stage deal trend – Athenix, Nextreme Thermal, ChannelAdvisor, Inlet Technologies nailed funds.

Surprised? As entrepreneurs and angel capitalists were told last week at the “Angel Connection” put on by Local Tech Wire and the Triangle Accredited Capital Forum, VCs are becoming a much less important player in early-stage deals. Sounds as if the latest VC statistics will add more evidence to that trend.

Nationally, startup/seed funding has declined for three consecutive quarters – this is not a trend ignited by sub-prime mortgages.

Plus, note this: The amount of first-sequence financing has declined six straight months to the lowest level since the first quarter of 2006 – 21.4 percent of total investment dollars.

“Q3 venture capital data won’t be finalized for a few more weeks, but preliminary numbers look grim,” Primack wrote in his daily blog Thursday.

Thomson Reuters in conjunction with the National Venture Capital Association and PricewaterhouseCoopers in the next few weeks. Dow Jones VentureWire also will report statistics.

Primack, who is well known in N.C. venture circles for his work with the annual VC business plan competition at UNC-Chapel Hill’s Kenan-Flagler business school, says a Thomson Reuters database is indicating VC deals will dip to under $7 billion for the first time since fourth quarter 2006 and will be down from $7.58 billion iu 2008’s second quarter.

The number of deals will plunge in the final stats, too, from 1,004 in the previous quarter. His early review of deals shows 628 investments.

“Pay particular attention to that ‘companies funded’ stat, which indicates that VCs are making bigger bets on fewer companies,” Primack wrote. “As of right now, companies funded in Q3 received an average investment of $9.04 million. We haven’t seen those levels since 2001, and reflect massive bets into the cleantech space.”

VC firms also apparently are having less success in raising capital. Primack said second-quarter fundraising stats, which lag investments, are down 33 percent, according to “preliminary data.”