Venture capital deals declined in both the fourth quarter and for all of 2012, according to the new MoneyTree report from the National Venture Capital Association and PricewaterhouseCoopers.

In 2012, VCs invested $26.5 billion in startups, down 10 percent compared with $29.4 billion a year ago. The number of investments was 3,698, down 6 percent.

In the fourth quarter, VCs invested $6.4 billion, down from $6.6 billion in the third quarter and $7.4 billion in the fourth quarter a year ago. The average deal size in the fourth quarter was $6.6 million, down from $7.2 million in the third quarter and $7.6 million a year earlier.

The second half of the year was definitely more pessimistic, particularly after the tepid initial public offering of Facebook. In the second quarter, when confidence was still high, VCs invested $7.3 billion with an average deal size of $7.7 million.

“Most people would say, ‘Oh, my gosh, the sky is falling,’ ” said Mark Heesen, the president of the NVCA, in an interview with the San Jose Mercury News. Instead, he thinks the pullback will result in “a more disciplined environment. The companies that are going to be funded are going to be really good, and a lot of the ‘duplicative’ companies aren’t going to be funded.”

Investors appear to be concerned about budget battles on the federal level. Sectors such as biotech and cleantech suffered. But software companies raised $8.3 billion in 2012, which was more money raised in a single year since the year 2001, according to the report. Cleantech investments fell 28 percent in 2012 compared to 2011. In the fourth quarter, cleantech investments totaled $535 million in 67 deals, down 36 percent in dollars from the third quarter. Life sciences deals fell 15 percent in 2012 to $4.1 billion.

VCs are shifting toward early stage investments. In 2012, they invested in 1,638 early-stage deals, compared to 1,555 a year earlier. The number of expansion deals fell from 1,022 in 2011 to 956 in 2012. And the number of late-stage deals fell from 917 in 2011 to 830 in 2012. But seed investments also declined from 443 in 2011 to 274 in 2012.

Internet investments totaled $1.5 billion in the fourth quarter, compared to $1.7 billion in the third quarter and $1.5 billion a year ago.

The top 10 U.S. venture deals during the fourth quarter were:

Intarcia Therapeutics, Hayward, Calif.; $155.9 million.

IO Data Centers, Phoenix, Ariz.; $90 million.

Zulily, Seattle, Wash.; $85 million.

BrightSource Energy, Oakland, Calif.; $83.6 million.

Valeritas, Bridgewater, N.J.; $75.6 million.

Ultragenyx Pharmaceutical, Novato, Calif.; $75 million.

Cloudera, Palo Alto, Calif.; $64.7 million.

23andMe, Mountain View, Calif.; $58 million.

Calxeda, Austin, Texas; $55 million.

Street Response Laboratories, New York, N.Y.; $53 million.
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The top 10 U.S. deals of 2012 were:

SquareTrade, San Francisco: $238 million.

Square, San Francisco; $200 million.

Intarcia Therapeutics, Hayward, Calif.; $155.9 million.

Fisker Automotive, Anaheim, Calif.; $147.6 million.

Sapphire Energy, San Diego $139 million.

Fisker Automotive, Anaheim, Calif.; $129.7 million.

Box, Los Altos, Calif.; $125 million.

Drilling Info, Austin, Texas; $116.8 million.

Harvest Power, Waltham, Mass.; $112 million.

Elevance Renewable Sciences, Woodridge, Ill.; $104 million.

Venture capital investments totaled $7 billion across 898 deals during the second quarter, down 12 percent from the same quarter a year ago. But investing in early stage companies grew to the highest level since early 2001.

The figures come from the MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association. A year ago, the numbers amounted to $8 billion invested in 1,057 deals. The second quarter was up 17 percent in dollars and 11 percent in deals from the first quarter.

VCs invested $2.1 billion in 410 early-stage deals. The association said those deals are critical to the U.S. innovation pipeline. For the first six months of the year, venture investment nationally was $13.1 billion, down from $14.7 billion a year earlier. Overall, VC investments in the U.S. are expected to exceed the $23 billion invested in 2010. Still, the numbers are likely to fall short of last year’s $30 billion.

Software is still the No. 1 sector of investment, drawing $2.3 billion in the quarter. Internet companies raised $1.8 billion in 261 deals. Life sciences drew $1.4 billion. Biotech drew $696.8 million.

Seed-stage companies received $199.4 million across 63 deals, down from $422.8 million in 130 deals. Later stage deals amounted to $2.09 billion across 193 deals, compared with 274 deals that raised $2.97 billion a year ago.

Silicon Valley continued to dominate the scene. New England companies got $843 million during the period. New York drew $568 million in the quarter. Washington state got $235 million invested in 25 deals.

The top 10 deals of the quarter are here:

1. Fisker Automotive, electric car maker: $147.6 million

2. Harvest Power, turns organic waste into natural gas and fertilizer : $112 million

3. Bloom Energy, developer of small, natural-gas powered fuel cells: $100 million

4. Pinterest, image-sharing website: $100 million

5. Castlight Health, health care shopping portal: $99.99 million

6. Skybox Imaging, provider of satellite imagery, video, and data analytics: $70.2 million

7. Qualtrics Labs, provider of online survey software: $70 million

8. Quora, question-and-answer site: $60 million

9. SunRun, provider of residential solar electricity: $60 million

10. Palantir Technologies, developer of data analysis software: $56.1 million

[Image credit: Flickr: Philip Taylor]

“Public policy challenges in the life sciences and clean technology sectors are impacting investment levels this quarter as is the IPO market that basically came to a screeching halt in August,” explained National Venture Capital Association president Mark Heesen in a statement.

The venture capital industry is often reflective of how the markets are doing, according to Heesen, though it does support company, product and job creation. Along with the drop in dollars invested, the number of deals made also decreased 14 percent to 876 completed deals, down from the 1,015 in quarter two 2011.

Clean technology fell in line with the overall venture capital economy, a 13 percent drop in dollars invested, totaling at $891 million. Last quarter the investors spent $1 billion on the industry.

But while green wasn’t great, the software industry did better — it topped all industries in dollars spent and deals completed. Software had a 23 percent increase in dollars at $2 billion, where last quarter the industry saw 1.6 billion. Software deals completed, while at the top this round, actually dropped 1 percent from last quarter, reflecting that even an industry’s success in one quarter is still subject to the whims of the market.

The full report by MoneyTree from PricewaterhouseCoopers and the National Venture Capital Association outlines the venture capitalist markets overall.

[Photo courtesy of tommiphoto/Shutterstock]

Venture funding has followed an unsteady path to recovery since the economy collapsed at the end of 2008. Venture rounds plummeted at the beginning of 2009, and though they’ve been climbing since then, the climb hasn’t been consistent. Investments fell in the first quarter of 2010, rose dramatically in Q2, and now they’ve fallen again.

So here’s the big number: During Q3 (July to September), venture firms invested a total of $4.8 billion in 780 deals, according to the report. That’s a 31 percent drop from the $6.9 million invested in Q2, and it didn’t even match the $5.8 billion invested during Q3 of 2009.

In a conference call discussing the numbers, Flybridge Capital Partners’ Michael Greeley suggested that Q2 may have been an “anomaly” and that the lower investment levels seen in Q1 and Q3 may be the new normal.

“Firms that are active are seeing quite healthy deal flow,” Greeley said, but the industry is consolidating and the number of active firms is falling.

Much of the unpredictability in venture capital can probably be attributed to cleantech. Since venture investment in the cleantech sector tends to be dominated by a few big deals, the amount invested varies widely from quarter to quarter. In Q3, cleantech investment declined 59 percent, to $625 million, from $1.5 billion in the previous quarter.

Still, other industries were down too. Biotech investments fell 32 percent. Internet investments fell 25 percent. The average deal size fell from $7.5 million to $6.2 million. And the number of early-stage deals fell from 454 to 358 (though as a percentage of overall deals, the number of early-stage financings remained the same).

The report was compiled using data from Thomson Reuters.

During the first three months of this year, venture capital investments fell 9 percent compared to the last quarter of 2009, from $5.2 billion to $4.7 billion. And the numbers of deals declined even more substantially, an 18 percent drop to 681 investments.

Things are better than they were at the beginning of 2009, which was basically right after 2008′s financial meltdown, when venture firms only invested $3.4 billion. But the funding level is still far below where it was pre-crash. For example, if you go back two years to the first quarter of 2008, venture firms invested $7.7 billion in startups.

NVCA President Mark Heesen made a cautious optimistic statement in the report:

Despite a great deal of economic uncertainty in the first quarter, the venture capital industry moved forward with a more active start than it did in 2009, which bodes well for the remainder of the year. With health care reform passed and an improving exit market, we are expecting venture investment to increase moderately throughout the rest of 2010. However, we still anticipate investment levels to mirror that of the mid-1990s as many venture firms will be focused on fundraising this year.

The last MoneyTree report already showed that 2009 was the worst year for venture investing since 1997. And the NVCA and Thomson Reuters already reported that fundraising by venture capital firms was also down this quarter.

As for specific industries, life sciences (which combines biotechnology and medical-device investments) is still getting the most venture money, with $825 million last quarter. Internet investments (which span a number of industries) are down to $807 million, from $941 million last quarter and little more than half the $1.4 billion invested in Q1 2008.

Cleantech, meanwhile, bounced back to $773 million, an 87 percent increase. The sector has more uneven investment numbers, because it tends to involve a few large deals. Early-stage investments are down too, with 299 deals compared to 392 last quarter.

The MoneyTree report is based on data from Thomson Reuters.