Summary:

With $7.5 billion invested in 835 deals, venture capitalists continued a strong quarter of investing in the third quarter, but wit predicted totals for the year likely to come in behind those for 2011, analysts discounted the popular idea that investing is seeing a funding bubble.

Venture capital investments stayed strong in Q3, with $7.5 billion invested in 835 deals, but that number is a slight dip from the $8.1 billion invested in Q2, and looks like the year will come in behind 2011 in terms of overall VC funding. The number of overall deals was the highest since the dot com days, with investors remaining enthusiastic about a greater number of seed deals, a trend that’s continued for a while.

The new Venture Capital Activity report from CB Insights details the continued growth in VC funding, although it casts doubt on the existence of a funding bubble, since the year’s total investment will likely come in behind 2011 in dollar amount.

Of course, when one reads the words “dot com” in the same sentence as VC, the bubble chatter begins. We, again, think it is without merit. Unless Q4’12 registers in at $9.2 billion of VC funding (and we’ll bet a healthy sum of money that it won’t), 2012 will actually be a down year in terms of total VC funding to companies. Yes, there continues to be frothiness in the Seed VC investing area as Q3’12 saw yet another uptick in already-high Seed VC deal volumes. And yes, the size of Seed VC deals is growing, following suit with volumes. So the reality is that there will eventually be blood among these Seed VC companies as many will be orphaned or just unable to raise follow-on financing.

But the report noted that even if all of the VC seed deals fail, it would still be only the equivalent of a medium-size VC firm going out of business, due to the small size of those deals. It’s just part of the ebb and flow of funding, the analyst firm wrote.

The full report can be found online here. A few trends that I thought were notable:

  • VCs continue to be enthusiastic about investing in mobile, with the sector taking 13 percent of funding dollars, up from 8 percent in Q2 and 7 percent in Q1. Mobile remains the third-highest sector for number of deals after internet and healthcare.
  • Green tech hit A five-quarter low in terms of both funding and number of deals, continuing a downward trend in this sector.
  • Healthcare funding rose slightly from Q2 levels, but declined in number of deals for the third quarter in a row.
  • CB Insights broke out Southern California to examine funding success by region of the state, and found that it came in third behind Silicon Valley and Massachusetts, and ahead of New York.
  • 49 percent of New York deals are small seed deals, although the region saw the greatest number of deals in five quarters.

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