VC funding to web startups hits decade-long high in 2011

If you thought 2011 seemed like a big year for web startup funding, you were absolutely right. According to the latest MoneyTree report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), 2011 saw the highest level of VC investment in Internet companies over the past decade.

A total of $6.9 billion went into 997 VC deals in Internet-specific companies over the course of 2011, an increase of 68 percent in dollars and 24 percent in deals from the previous year, when $4.1 billion went into 807 deals. Internet companies accounted for 24 percent of all VC investments in 2011, compared to 18 percent in 2010, the MoneyTree report said.

From the Q4 2011 MoneyTree report (click to enlarge)

But the year didn’t close on the strongest note for Internet VC investments. In the fourth quarter of 2011, $1.29 billion went into Internet companies, a 23-percent decline in dollars from the previous quarter and about even with the fourth quarter of 2010, when $1.25 billion was invested. What made 2011 such a huge year for web VC investments was really the exceptionally strong second quarter, when $2.4 billion was invested in Internet companies.

Another interesting data point from the survey is the large amount of seed and early stage investments seen in 2011 across all industries that received VC funding. Seed and early stage funding as a whole was the higher in 2011 than it has been in at least seven years, according to the MoneyTree report, accounting for 1810 of the 3673 total deals completed in the year — nearly 50 percent of total deal activity.

From the Q4 2011 MoneyTree report (click to enlarge)

The current level of activity may seem a bit frothy, but with the huge numbers of people using the Internet today, many people think this is just the beginning for the industry’s growth in terms of companies and revenue potential. And the non-stop buzz that surrounded the tech industry in 2011 shows the investment dollars were just accompanying the larger excitement around the space. But whether it’s overly hyped or not, with 2012 on deck to be a strong year for web startup exits, particularly through initial public offerings, the Internet VC funding frenzy probably won’t slow down significantly any time soon.