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Venture investment rises in first quarter of 2010

Venture investment is on the way back with more than 700 deals completed in the first quarter of 2010--good news for start-ups and the economy as a whole.

Private company research firm CB Insights (formerly known as Chubby Brain) on Tuesday released new venture investment data for the first quarter of 2010. Overall, the news is very positive with strong growth in the number of deals from 687 in the fourth quarter of 2009 to 731 in the first quarter of 2010.

The first quarter of 2010 saw $5.9 billion invested across 731 deals, a marked increase over the year-ago quarter when $3.9 billion was invested across 483 deals. "The psychology and sentiment of entrepreneurs and venture capital investors continues to improve, albeit cautiously," the report concluded.

And while CB Insights notes that $5.9 billion remains far below quarterly levels seen before the '08-'09 recession, there is some belief (that I share) that "the VC asset class has perhaps reset at a lower but ultimately more sustainable and healthier level."

The fact that VCs are opening their collective wallets, even for smaller deals, is good news for both entrepreneurs and the economy as a whole. That said, there is still probably too much money still sitting on the sidelines.

What's interesting to note is the vast disparity in the number of deals by sector, where health care and Internet outpace all other categories by at least 3 to 1 in number of deals.

VC Deal Volume Q1 2010

There are a number of notable highlights in the first quarter of 2010:

  • Many small deals: 731 deals represents the highest deal activity in the last six quarters, but dollars invested per deal declined
  • Early stage investments get smaller: the number of early-stage deals remained largely consistent dropping only 4 percent versus the prior quarter, but dollars invested in early stage deals fell nearly 21 percent.
  • Green investments grew significantly: green investments jumped 55 percent and 134 percent on a deals and dollars basis, respectively, versus the fourth quarter of 2009.
  • More location diversity: beyond the big three (California, Massachusetts, New York), nine states (Texas, New Jersey, Washington, Pennsylvania, Colorado, Florida, Maryland, Minnesota, Connecticut) had at least 10 venture deals in this quarter demonstrating atypical broad-based geographic strength.
  • New Jersey a venture hotspot: for the second quarter in a row, New Jersey stayed in the top five on venture dollars received on the back of solid health care investment.
  • Washington books more deals: Washington's deal activity saw the third straight quarter of increases slotting it fifth on a number-of-deals basis.
  • Health care saw its number of deals increase: for the 1st quarter, health care remained the largest single sector for venture money.

As I've spent more time in the valley over the last few months, I've heard from a number of VCs that down economies are the best time to start companies. What are you waiting for? Get out there and raise some dough.