VCs poured $26B into business last year, up 11% from 2009

Venture capitalists came raging back in 2010, putting $26.2 billion into 2,799 venture deals, a spike of 11 percent from 2009 and a major sign that formerly wary VCs have begun to come off the sidelines, according to a study by Dow Jones VentureSource released today.

The data also showed that 2,636 deals took in $23.6 billion, with the fourth quarter alone raising $7.6 billion through 735 deals — a 6 percent increase in capital invested from the same quarter a year prior.

The numbers backed up a much-touted report from Thomson Reuters last week that showed VCs spent the most money in 2010 since 2007.

VentureSource said that while healthcare and IT initially lead the charge, they are not currently driving growth, because investment in business technologies, consumer solutions and energy companies “gained the most traction” in 2010.

It was certainly traction that stuck.

IT companies raked in $7.2 billion for 889 deals in 2010, a jump from the $6.7 billion put into 858 deals in 2009. Software, too, did well, becoming the only IT sector to see an increase in both deal activity and capital invested, with 608 deals raising $3.8 billion.

However, VCs weren’t necessarily spending the kind of cash they did before the credit crisis, a drop that has recently been part of a major debate about how ready the venture capital community is to jump wholeheartedly back into large deal sizes generally.

The median deal size for 2010 was only $4.4 million, a drop from the $5 million median in 2009.

Still, interest in Web companies did help growth overall, said VentureSource, as “sizable cash infusions” for maturing Web companies boosted deals in other sectors.

The study said this is most likely because VCs are now pursuing strategies more akin to growth equity investing than traditional venture capital with some of their maturing Web companies.

“Companies like Groupon, Zynga and Facebook are generating hundreds of millions of dollars in revenue so VCs don’t need to exit quickly,” said Scott Austin, editor of Dow Jones VentureWire. “Instead, they are growing these companies through acquisitions of technology and talent as well as business
development, which can require sizable cash infusions.”

VCs are also still waiting longer to invest, with later-stage deals accounting for 40 percent of the year’s deals and 61 percent of total capital raised in 2010. It was a minor bump up from 2009, when later-stage deals made up 38 percent of deals and 55 percent of capital raised overall.

Seed- and first-round investing remained largely unchanged, comprising 36 percent of deals and 18 percent of capital invested during 2010, a barely noticeable difference of the 35 percent of deal activity and 19 percent of capital raised year-over-year.

[Photo credit: Refracted Moments]