Want venture capital? Come to California

If you're looking to raise venture money, more than half of it's here in the Golden State.

Despite the fact that the state is constantly teetering on the brink of bankruptcy, California remains at the top of the venture capital heap churning out the most deals with the most dollar volume in the second quarter of 2010.

A new report from private company research firm CB Insights reveals that California companies took more than 50 percent of total venture dollars in the second quarter with financings breaking the $3 billion funding mark and more than half of those funds going toward health care and Internet companies. In addition to California, two other states--Massachusetts and New York--accounted for 70 percent of the total venture funding pool, an 11 percent increase over last year.

California leads in VC dollars
California leads in VC dollars CB Insight

And while the overall number of deals was flat in the first quarter of 2010, at $5.9 billion for 612 deals, it was up by one-third over the first quarter in 2009, which saw 483 deals totaling $3.9 billion. In this economy, a flat number of deals is a positive not just for entrepreneurs but for the economy as whole.

VC deal volume for second quarter of 2010
VC deal volume for second quarter of 2010 CB Insight

Other highlights from the report:

  • Early stage deals represent almost 42 percent of VC deals in the quarter and only 18 percent of funding. The trend toward more small deals continues.
  • Internet deals and dollars were at the highest levels seen in last five quarters. Industries within internet sector receiving investment were quite diverse ranging from games to social to e-commerce showing opportunities.
  • Of all sectors, green tech sees the largest fluctuations in venture funding (usually based on the presence or lack of a few large deals). This quarter was no different with funding dipping 20 percent compared with the first quarter of 2010. Deal count also sank 35 percent.
  • More than 70 percent of deals and dollars in New York went to Internet companies, representing a 25 percent increase in deals compared with the first quarter of 2010.
  • Texas funding grew by 58 percent compared with last year and nearly doubled deal count. Nearly 50 percent of funding in the state went to green/clean tech focused on renewable technologies.

The big question is if we've reached a normalized number of deals and dollars invested for the foreseeable future. The majority of venture capitalists I know say that they don't have enough high-quality deals to fund, which is probably true, though we're in a bit of an odd time at the moment as the valley has shifted

About the author

Dave Rosenberg has more than 15 years of technology and marketing experience that spans from Bell Labs to startup IPOs to open-source and cloud software companies. He is CEO and founder of Nodeable, co-founder of MuleSoft, and managing director for Hardy Way. He is an adviser to DataStax, IT Database, and Puppet Labs.

 

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