Venture capital funding falls sharply in third quarter

Venture capital funding for U.S. companies fell sharply in the third quarter compared with a year earlier, according to statistics compiled by Dow Jones VentureSource.

California continued to be the nation’s dominant player in financial support for promising new companies, although the state’s numbers were also off by a considerable margin. In Southern California, funding for start-ups fell more than half.

Across the U.S., 820 venture capital deals raised $6.9 billion during the third quarter. That represented a 32% drop in funding, but the number of deals fell just 9% compared with the same period a year earlier. Analysts said it meant that venture funding wasn’t drying up, just being doled out in small amounts, in part to companies that were just beginning to attract so-called angel investors.


California accounted for 44% of the nation’s venture funding in the third quarter, but the $3.1 billion raised by firms headquartered in the state represented a decline of 41.5% compared with the same quarter in 2011. The number of venture deals in the state fell 15%, again indicating that the average amount of funding had fallen.

In Southern California, firms raised $648.1 million in a total of 63 deals. That represented declines of 54.5% in money and 21.3% in the number of deals.

“It’s important to remember that 2011 was also a record year for venture capital funding,” said Mark Sogomian, strategic growth markets leader for Ernst & Young in Los Angeles. “We are clearly down and will likely be down for the year, but 2012 is looking a lot like 2010 in terms of funding.”