Are Venture Capitalists Becoming More Adventurous?

VC funding seemingly stabilizes for most of the tech sector.
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This story appears in the January 2010 issue of Entrepreneur. Subscribe »

The venture capital spigot continued to dribble rather than gush through the first half of 2009, according to data compiled by VentureDeal in Menlo Park, Calif. But there was good news along with the bad.

The bad: Total VC funding across all technology sectors was roughly 40 percent less than it was at the end of June '08, with about $4 billion in funding received in the second quarter of 2009 versus $7 billion in Q2 2008. The good: Comparing Q2 2009 with the previous quarter shows VC tech funding has hit bottom and is on the way back up. Three of the four tech sectors VentureDeal tracks--alternative energy, biotech and Internet--rebounded from Q1 '09, with energy seeing the biggest gain, up 20 percent. Only telecom remained moribund, with just $204 billion in funding in Q2 '09, less than half what it was in the first quarter and just one-third the dollars committed in 2008's second quarter.

The technology subsector scoring the most funding was biotech, which received nearly $2 billion. The lion's share went to medical-device companies, which brought in $867 million, up 44 percent from the previous quarter. VentureDeal founder Don Jones says there's keen investor interest in biomedical devices that can cut healthcare costs by reducing the need for surgery. Funded companies included Avedro in Waltham, Mass., which received $10 million to further its work on a non-surgical vision-correction procedure.

The biggest percentage gain was seen within clean tech, which came alive to snare $69 million in VC funds in Q2 '09, a hefty 287 percent improvement over the previous quarter. While it's still getting a relatively small portion of the whole tech-funding pie, it's a sector to keep an eye on, Jones says. Particularly hot are makers of more efficient batteries, thanks to federal stimulus-bill funds targeted to the sector.

As Jones puts it: "There's definitely a wind at their backs."

VC Funding Activity Q2 2008 Q1 2009 Q2 2009
Alt. energy $1.300B $ .382B $ .457B
Biotech $2.270B $1.72B $1.98B
Internet $2.930B $1.42B $1.50B
Telecom $ .603B $ .421B $ .204B
Totals: $7.103B $3.943B $4.141B

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