Venture capital funding grew 17% in 2Q

While on track to surpass 2010, the numbers were below what they were a year ago

Money Tree

Venture capital funding totaled $7 billion in the second quarter of 2012, marking a 17% spike over the prior quarter, while the number of deals grew 11% to 898, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data provided by Thomson Reuters.

The numbers were still below where they were a year ago. Total funding was down 12% from the second quarter of 2011, while deals were 15% lower. Even so, 2012 is on track to surpass 2010 in investment.

The report, released Friday, showed particular strength in what investors call the early-stage category, comprising companies that have gotten past the seed or angel stage. PwC counted $2.1 billion — up 18% over the prior quarter — going to 410 companies, an increase of 28%.

It was the highest quarterly total of early-stage deals since the first quarter of 2001, a period that was on the downward slope of the dot-com bubble. Investments in the software industry were the highest they've been since the second quarter of 2001.

Despite the echoes of the dot-com years, analysts see no reason to worry about a bubble.

“A massive industry has grown up between then and now,” said David Silverman, managing partner, PwC New York Metro's emerging-company practice. Google was a small company back then, and Facebook didn't exist. “The industry has continued to justify increased investment,” Mr. Silverman said.

The New York metro region also bounced back in the quarter. Deals climbed 22% to 100, while funding shot up 52% to $567 million. Compared to the year-ago period, funding was down 15%, while deals were down just 4%.

In the competition for second place with the Boston area, New York fared less well in the PwC report than in another second quarter VC report released Tuesday by a rival firm. CB Insights counted 83 deals for New York and 75 for Massachusetts, putting the Empire State in second place behind perennial frontrunner California for the second quarter in a row.

PwC found 115 deals in New England, giving the Boston area the No. 2 spot. But its edge tends to be concentrated in the life-science category, which includes biotech and medical devices, areas where Boston has traditionally been stronger than New York.

When it comes to tech — including the categories of software, information technology and media and entertainment — New York holds its own.

“Tech vs. tech, New York has outpaced Boston for many quarters,” Mr. Silverman said. Overall, he added, “the gap (with Boston) is closing.”

As for why there are differences in the two surveys, both Mr. Silverman and Anand Sanwal, CEO of CB Insights, said it was impossible to determine without looking into the other company's methodology.

“There are probably differences in definitions and what's being counted,” Mr. Silverman said. “But the trends, generally, are pretty similar.”

Matthew Flamm is a reporter at Crain's New York Business, a sister publication of Pensions & Investments.