Q1 2012 saw more VC deals signed but less investment paid. Seed investments hit an all time high.

Q1 2012 saw more VC deals signed but less investment paid. Seed investments hit an all time high.

The first quarter of 2012 saw an increase in the number of deals made by US-based VCs, but the value of funding was lower with seeding funding at a new high, according to a new report from investment measurement CB Insights.

January to March saw the number investment deals closed by VC firms across the country increase to number 785, but overall funding dipped by 22 percent on the previous quarter to reach $5.9 billion.

The reduction funding should not be a concern, the CB Insights concludes, as the total investments recorded represent the second most active quarter over the last two years. Though the total level of investment did drop, CB Insights founder and CEO Anand Sanwal is not concerned.

“Although this represents a 22% decline in funding from Q4 2012,” Sanwal says, “we do not think that a single quarter dip in funding is in any way symptomatic of any sort of correction or any sort of bubble bursting.”

“Deal activity, which we view as a better gauge of investor sentiment, remains strong,” he continues. “The funding dip is primarily the result of fewer VC mega deals in the quarter which as the quarter illustrates can and do move numbers significantly up when present and down wildly when absent.”

In the wake of a more cautious quarter of investing, seed funding hit an historic high to account for close to 20 percent of all deals.

The growth of such early stage investments allows VCs to lower the risk on their invested capital, whilst also gain first access to promising firms which could develop in the future. The growth is in line with the increased number of deals, and lower levels of funding, which are reported for the quarter.

Looking through the plethora of statistics, there is a clear differentiation between the number of deals and overall funding raised in the US. Overall VC payouts dropped to the lowest since the third quarter of 2010.

A state-by-state on quarter investment totals, there is little change to the order of play in the first quarter of 2012.

However, New York-based revenues dropped to a five quarter low, but the firm doesn’t anticipate that this lull is a problem, yet, as deal activity remains strong in the state.

Sector-by-sector saw a significant 3 percent drop in finding dollars to mobile (more below) with Internet the main gainer, seeing overall investment revenue rise by 2 percent during the three month period.

CB Insights has embraced what it calls ‘The Instagram Effect’ and now splits its results out for Internet-related investment and mobile and telecom funding.

Interestingly, the volume of Web deals rose despite deal value plummeting, exaggerating the overall trend, while the number of mobile investments stayed level with the funding total dropping significantly.

CB Insights expects that, following the landmark $1 billion deal, VCs will cast their eye more firmly on mobile investments.

Like most tech investment sectors, VCs are favoring small seed investments in the mobile sector. And since the Instagram acquisition by Facebook was announced when Q1’12 was already in the books, we expect that the coming quarters will be interesting for the mobile sector as companies and investors try even more aggressively to ride the mobile wave.

The full analysis includes a range of data assessing VC activity over the last quarter by state, industry sector, deal value and more. All stats are plotted against previous history to provide a powerful and informative data set.

It’s just worth remembering that the report includes deals where VCs have participated, and funds raised otherwise, such as via mutual or private equity funds, are not included in the data.

You can download the free report from the CB Insights website here.

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