Venture Capital Investment in Technology Gains Ground

A new report finds funding for startups in everything from electric-vehicle infrastructure to software is beginning to return to prerecession levels.

Technology and health care led the pack in venture capital funding in the second quarter of 2010. These two sectors acquired the lion's share of private funding with $4.6 billion of the $7.1 billion total investment in U.S. venture capital funding, according to a report by Dow Jones VentureSource.

By year-over-year comparison, investment in technology edged up to $1.6 billion from $1.3 billion in 2009 and included 231 deals. The big winner was software as 156 deals collected just under a billion dollars at $905 million--a gain of $147 million from the same period last year.

"Fueled by investors' need to keep current portfolio companies funded and to begin investing from new funds, venture capital financing had a strong quarter," said Jessica Canning, research director for VentureSource in a statement. "Deal activity and capital invested in venture-backed companies is once again near levels seen before the start of the economic recession in 2008."

Health care startups gained more dollars than technology in the second quarter. Of that $4.6 billion between technology and health care, $2.7 billion went to health care with $1.2 billion going toward biopharmaceutical companies.

"Venture investment in health care companies has gained momentum over the last several years, a trend that is likely to continue," said Scott Austin, editor at VentureWire. "One catalyst for recent growth is venture firms placing a premium on drug development companies nearing commercialization, requiring large sums to get their drugs through Phase III trials."

Business, financial services and consumer information services all saw gains in venture deals. The business sector saw gains of $107 million from the same period last year fro a total of $814 million; Consumer services earned $710 million.

Another sector keeping pace with capital investment from 2009 is the energy sector which saw the largest individual deal of $350 million in Better Place, an electric-vehicle infrastructure company who makes batteries, charging systems, and storage networks. Better Place is lead by founder and CEO Shai Agassi who is a former SAP executive.

Two electric cars are expected to hit the market later this year including the Nissan Leaf and the Chevrolet Volt. A number of cities are jumping on the electrification bandwagon including Houston, Indianapolis, Memphis, Orlando, San Francisco and Seattle.