Jennifer Zaino
SemanticWeb.com Contributor

Is it a good time to seek venture capital funding for your semantic web venture?

A look at some reports about recent venture capital activity may provide some insight into whether now’s a good time to knock on doors. There is some good news: Second quarter VC investment was better than Q1. On the downside, the money didn’t flow quite as fast as it did this time last year.

This week saw the release of the MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association, based on data provided by Thomson Reuters. While the number of deals was essentially flat between Q1 and Q2, there was a 15 percent increase in dollars invested compared to the first quarter, the report says. That added up to VC investment of $3.7 billion in 612 deals in the last quarter.

The money mainly went to the life sciences sector, with the biotech segment of that sector ranking as the largest single industry category for the quarter — $888 million across 85 deals. According to the report, Internet-specific companies (anyone with a business model fundamentally dependent on the Internet, as is the case for most semantic web startups) saw a bit of a downturn, racking up just $524 million in 124 deals — a 15 percent decrease in dollars and a 12 percent decrease in deals from the first quarter.

And if you haven’t already been through your first-time financing from VCs, it won’t be good news to hear that the number of first-time deals overall declined by 5 percent (although the dollars increased 9 percent), the lowest number of first-time deals in 15 years. On the other hand, if you’re following the traditional software delivery model for providing clients such as enterprises with semantic capabilities, things may be a bit brighter: Companies in the software industry, along with biotechnology and medical devices, received the highest level of first-time dollars, according to the report.

Released over the weekend, DowJones’ VentureSource 2Q09 U.S. Venture Capital Financing report revealed only one next-generation Web company among its largest nine U.S. deals in the second quarter: Facebook raised $200 million. IT investment was the weakest it has been since 1997, and for the first time lagged health care investment, the report notes, with $1.9 billion invested in IT compared to $2.2 billion in the health care sector.

Software investment on its own was hard up, according to this report. Jessica Canning, Global Research Director, Dow Jones VentureSource, who wrote in her analysis, “For the past six years, software investment has averaged just under $1.5 billion each quarter but that figure has been cut in half in the first two quarters of this year.”

With $696 million invested in 115 deals, however, it still bested investment in the information services sector, where DowJones’ VentureSource lists most of Web 2.0 companies. That sector, it says, saw investment of $572 million in 69 deals during the second quarter. Moreover, that was down 29 percent from $800 million invested in 94 deals a year ago.

Overall, this report counts 595 deals to the tune of $5.27 billion for the quarter – 32 percent higher than the first quarter, but still lagging the $8.33 billion invested in 726 deals during the second quarter of last year.

Going global, the 2009 Global Venture Capital Survey conducted jointly by Deloitte & Touche LLP and the National Venture Capital Association and released in June reveals that more VCs actually do believe it is a good time to invest in promising entrepreneurial companies across many different sectors, not just technology. U.K. and Israeli companies were the most likely to consider it a terrific time to invest, with the U.S. and Asia-Pacific following closely. They’re also looking to governments to take more action to foster innovation in the next year, mostly through favorable tax policies for entrepreneurial and venture development but also through increased government support for entrepreneurial activity. Nearly a third say governments should increase investment in R&D to improve conditions for VCs.

Over the next three years, the VCs surveyed see an anticipated level of investment change (in terms of total capital invested) in the software sector as follows: 22 percent increase, 60 percent remains the same, and 18 percent decrease. For new media and social networking, that tracks at 26 percent, 40 percent and 25 percent, respectively.

The report also shows that in terms of total capital invested, over the next three years VCs expect the U.S. to see the greatest decrease (22 percent)in the anticipated level of investment and Asia Pacific region (excluding India) to see the greatest increase (50 percent). VCs worldwide believe it’s the U.S.’s game to lose in terms of overall economic stature — and China’s to win.

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