Venture Time: What the VCs spent money on in 2011

Whenever it comes to venture capitalists, what everyone really wants to know, rather than their dreams of a brighter tomorrow, is what they're spending they're money on, and if it's likely to be on you anytime soon.

The latest figures from MoneyTree suggest that if your project is software or internet specific, then you stand a good chance.

In 2011 software hung on to its title of top investment sector, with $6.7 billion invested in 1,004 deals in 2011. Q4 might have seen a drop for software, with $1.8 billion spent on 238 deals but this still kept it at the top for the period, and way ahead of its closest competitor, biotechnology.

Internet companies hit the VC jackpot, with $6.9 billion splashed on 997 deals in 2011, the highest level of investment in the sector for ten years. It was a 24 per cent increase on 2010, which saw $4.1 billion spent on 807 deals. Like software, internet companies did see a decline for Q4 compared to Q3, a drop of 23 per cent in money terms, but this category (companies who rely on the internet at the most fundamental level) still accounted for 24 per cent of all venture capital spending for the year.

"We saw a resurgence in investments in clean technology and internet-specific companies in 2011, as well as a bit of a jump in average funding in the internet sector," said PricewaterhouseCoopers' Tracy T. Lefteroff.

"However, while venture capitalists continue to show their interest in these areas, they are acting prudently and not chasing excessive valuations. Accordingly, despite the increase in investing, we're unlikely to see these sectors overheat like we saw in the 1999 to 2000 era."

The report identifies 17 sectors of VC investment, with 13 showing an increase in investment on 2010. Financial consumer products and services saw a massive 103 per cent rise and media and entertainment a 53 per cent rise.

It was good news for VC virgins too, as there was a rise in the number of first time financings. Software saw the most money spent on first time deals and the largest number of first time deals done. A massive chunk, 51 per cent, of all first time deals, occurred in the early stages of development, and just 9 per cent in the later stage.

Overall, $28.4 billion was spent on 3,673 investments in 2011, a 22 per cent rise on 2010's spend.

But Mark Heesen, National Venture Capital Association president association, doesn't want you to order the Cristal right away.

"While venture capital investment grew in 2011, it is important to note that deal volume growth did not keep pace with dollar growth," he warned.

"In most industry sectors, round sizes increased significantly, driving the higher investment levels across most stages of investment. Reasons for this phenomenon differ depending on area of investment. For some, the higher rounds are driven by the challenging exit market which requires venture capitalists to fuel their existing portfolios longer and at greater investment levels than in the past. In other sectors such as Internet, software and media, the higher rounds speak to increasing valuations."