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The global economy may be facing strong headwinds, but in the second quarter of 2012, technology entrepreneurs in the United States probably didn't notice.

According to CB Insights, Q2 2012 was the biggest quarter for VC investment in the U.S. in more than a decade, and a record-breaking one too.

All told, VCs in the U.S. poured $8.1bn into companies in the second quarter. That represents a solid 5% year-over-year increase, and an even more impressive 37% quarter-over-quarter increase.

The particularly good news for entrepreneurs looking for cash: VCs weren't just throwing money at larger startups that have already raised money. The total number of deals invested in rose 4% year-over-year, to 812, and nearly a quarter of them (22%) were seed stage deals, perhaps a reflection of two things: the lowered costs of starting certain kinds of tech companies and the rise of super-angels and outfits like Y Combinator. Interestingly, as AllThingsDigital's Liz Gannes notes, "There were more seed deals than Series A fundings for the first time ever. And that’s excluding angel funding, which CB Insights counts separately."

Obviously, venture capital financing doesn't guarantee that a company will be successful (most VC-backed companies don't get acquired or go public), but for entrepreneurs in need of capital, the availability of funding, particularly at the seed stage, is good news. But is it good news for the tech industry?

Technology may be one of the most resilient sectors of the global economy, but with the EU on the brink, the U.S. delivering anemic economic growth and even China facing a slowdown, one has to wonder if American venture capitalists are ignoring the ominous clouds on the horizon. Macroeconomic issues aside, there are also interesting patterns in where venture capitalists are putting their money -- and not all of them seem good.

Case in point: although social investments are down, nearly a third of the funding (29%) in the mobile space went to mobile photo and video startups. While this is an exciting market, the amount of money being poured into this space could be considered a potential sign of irrational exuberance following Facebook's $1bn acquisition of Instagram.

So where will all this investment lead? Are we headed for a golden era of technology startups, global economy be damned? Or will Q2 2012 prove to be part of the peak before reality catches up with Silicon Valley? Time will tell. In the meantime, entrepreneurs in need of funding don't have any excuses for not raising it.

Patricio Robles

Published 16 July, 2012 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (2)

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SEO Ireland

Bubble, anyone?

Sorry for being Cynical.

about 4 years ago

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Deri Jones, CEO at SciVisum.co.uk

> While this is an exciting market, the amount of money being poured into this space could be considered a potential sign of irrational exuberance

He he - that is so often the way of the VC investor, when they watch each other and buy into perceived 'trends', then of course those trends get over-heated and silly money gets wasted!

Being a serial entrepreneur myself, I've experienced the pressure on a start-up to wrap itself into the clothes of the current trend. For the 1% of such start-ups who get the silly money, fantastic (so long as they get to take some home as salary and don't spend it on silly cars !)

On some of the Business Angel groups I'm involved with, I find that it is the smaller investor, punting as a group with a couple of their trusted peers, that look beyond the hype of the trend and genuinely want to understand what they're investing in and why - and that process really helps a start-up company get focused and be more effective, whether or not any money changes hands at the end!

about 4 years ago

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