Venture investments up 10 percent in 2010

Another source of funding for small businesses is coming back.

Venture investors pumped $5.5 billion into 662 deals for US-based companies during the third quarter of 2010, according to Dow Jones VentureSource.  This works out to a 5 percent decline in the value of the investments but a 2 percent increase in the number of deals from the same period last year.

The trends are even more impressive, however, if you look at the data for the first three quarters of the year. During the period, $18 billion was invested in 2,016 deals, a 10 percent increase in both investment and deal activity over the same period last year.

"The uptick in venture investment through the first three quarters reflects the fact that the fund-raising and liquidity markets are also improving," said Jessica Canning, global research director for Dow Jones VentureSource, in a press release. "With more cash on hand and with exits freeing up capital slated for their portfolio companies, deal making is picking up."

The median deal size for the third quarter was $5 million, on par with the same period last year.

Seed- and first-rounds accounted for 34 percent of deals and 20 percent of capital invested during the most recent quarter. During the same period last year, early-stage rounds claimed accounted for 31 percent of deal activity and 15% of capital raised.

Later-stage deals accounted for 42 percent of the third quarter's deals and 57 percent of total capital raised.

Angels and venture firms are also doing more deals together.

During the first three quarters of the year, 68 deals that raised $282 million were funded by both angel groups and venture capital firms. During the same period last year, 59 co-investment deals raised $236 million.

In the most recent quarter, the information technology industry fetched the largest proportion of deals and dollars. The industry saw 232 deals raise $1.8 billion, a 35 percent increase in capital invested from the third quarter of 2009. Investment in the software sector surged 67 percent as 159 deals raised $1 billion.

The business and financial services industry also was a big recipient of venture investments. In the third quarter, 121 deals raised $841 million, up from 103 deals that raised $708 million during the same period last year.

Dow Jones VentureWire points out that within this industry, the web-heavy support services sector saw a 56 percent increase in investment as 94 deals raised $667 million. This includes advertising platforms, data management services and online marketplaces.

On the other hand, investment in consumer services slumped by 20 percent, as 100 deals raised $560 million. This industry is driven by the consumer information services sector, which includes social Web and other Internet companies. Consumer information services companies raised $495 million for 83 deals, a 15 percent decline in capital invested from the same period last year.

Healthcare companies experienced an 11 decline in capital raised from the same period last year. Within the category, biopharmaceuticals fell 7 percent to $854 million from 73 deals and investment in the medical devices sector dropped 26 percent to $621 million on 59 deals.