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Q1 VC Funding: The Bubble Before The Bath?

Published on April 22, 2011
by John Paczkowski

To some investors, the mood is reminiscent of 1995, when the initial public offering of Netscape set off the dot-com craze, leading to a technology bubble. That bubble popped in 2000, littering the tech field with failed companies and red ink.

— “In Silicon Valley, Investors Are Jockeying Like It’s 1999,” The Wall Street Journal, April 19, 2011

Depending on your outlook, the latest venture capital numbers are either further evidence of a recovery or froth growing around an expanding bubble.

Investment in U.S. venture-backed companies rose 35 percent in the first quarter, according to some new metrics from Dow Jones VentureSource. VCs doled out some $6.4 billion spread across 661 deals. That’s a 35 percent increase in investment year over year and a 5 percent increase in the number of deals done. Which is encouraging, particularly since the median sum of VC funding raised in the first quarter was $5 million, up from $4.4 million a year earlier and roughly on par with the 2009 median.

One caveat: this first quarter spike in funding size was driven largely by a few big money deals. Digital music outfit Beyond Oblivion, for example, pulled in $77 million in early-stage funds.

“Investment in consumer-focused Web companies is taking off but only for a select few,” says Dow Jones VentureWire’s Scott Austin. “A handful of large rounds are boosting the total amount of capital invested, but the median amount raised by consumer companies is a reasonable $4 million. That’s not far off from the first quarter of last year and is less than half of the median round sizes we saw in 2000 leading up to the implosion of the dot-com bubble.”

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