US venture capital investment declines Venture capital investment declined in the third quarter, putting 2012 on track to fall short in both dollars invested and deal volume compared with last year. The drop has been characterised by an "alarming" low rate of first-time financings for biotechnology companies and medical devices and a consolidation of capital among fewer venture firms, according to a new report by PwC and the National Venture Capital Association based on data from Thomson Reuters. "Life sciences investment remains low, reflecting ongoing concerns regarding regulatory uncertainty, capital intensity and investment time horizons," said Mark Heesen, president of the National Venture Capital Association. Venture capitalists are instead investing in information technology, particularly in internet-based companies. Venture capitalists invested $6.5bn in 890 US deals in the third quarter, a decline of 11 per cent in terms of dollars and of 5 per cent in the number of deals compared with the previous quarter. Most of the drop was felt by companies in the earliest stages of forming - seed level investment fell 22 per cent in dollars, while early stage investment fell 21 per cent - solidifying a trend analysts have noted throughout the year. "The decline in funding for early stage companies is firmly in place," said Tracy Lefteroff, global managing partner of the venture capital practice at PwC. "We're seeing venture capitalists be very cautious with the capital that is available due to the lack of a significant number of liquidity events," he said. Instead, venture capitalists are continuing to support the companies already in their portfolio. Industries that remain strong in investor confidence were software, media and entertainment, and information technology. Software received the highest level of investment, with $2.1bn invested in 304 deals during the third quarter, marking the fourth quarter in the past five in which investment in software exceeded $2bn. While investment in biotech increased 64 per cent to $1.2bn, most of the money went into follow-on rounds in existing investments. Medical device investing declined for the third consecutive quarter, falling 37 per cent in dollars to $434m, the lowest level of investment since 2004. The clean technology sector, which includes alternative energy, conservation and power supplies, saw $791m invested in 58 deals, a 20 per cent decrease in dollars, but a 2 per cent increase in deal volume. "We continue to see clean tech investment shifting concentration to smaller, more capital efficient deals," Mr Heesen said. Opportunities continue to abound in each of these sectors, but lower venture fundraising levels will push investment dollars down as the industry recognises it cannot put out more money than it takes in.