Venture capitalists invested $9.5 billion in 951 deals in the first quarter of 2014, according to the MoneyTree Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. 

Quarterly venture capital (VC) investment activity rose 12% in terms of dollars but fell 14% in the number of deals compared to the fourth quarter of 2013, when $8.4 billion was invested in 1,112 deals.

"Context is everything, and when you consider the context behind the numbers, you start to understand why there was a shift in the first quarter of 2014. Seed and early stage financing numbers are down from the previous quarter, but expansion stage dollars invested are up 34%.  This was to be expected when you consider the domination by seed and early stage deals in 2012 and 2013," said Bobby Franklin, president and CEO of NVCA. "Because these companies now are moving to the next stage of their maturing process, the investment rounds tend to be bigger, which explains why the numbers are trending toward the later stages of the investment calendar.  To be sure, the spring thaw of the exit markets is providing some firms with new life, but overall capital remains constrained for most venture capital firms." 

The software industry received the highest level of funding of all industries, up 39% from the prior quarter to $4 billion invested during the first quarter of 2014. The software industry also counted the most deals in Q1 at 414. 

The biotechnology industry was the second largest sector for dollars invested with $1.1 billion going into 112 deals, falling 23% in dollars and 21% in deals from the prior quarter. The medical devices and equipment industry also experienced a decline in volume, dropping 37% to 61 deals in Q1, while the dollars invested rose 28% to $588 million. Overall, investments in Q1 in the life sciences sector fell 10% in dollars and 28% in deals when compared to Q4 2013.

Seed stage investments fell 64% in dollars and 41% in deals with $125 million invested into 41 deals in the first quarter. Early stage investments fell 3% in dollars and 18% in deals, with $2.9 billion going into 451 deals.  Seed/early stage deals accounted for 52% of total deal volume in Q1, compared to 55% in the fourth quarter of 2013. The average seed deal in the first quarter was $3 million, down from $5 million in the fourth quarter of 2013. The average early stage deal was $6.4 million in Q1, up from $5.4 million in the prior quarter. 

Expansion stage dollars rose 34% in the first quarter, with $3.9 billion going into 274 deals.  Overall, expansion stage deals accounted for 29% of venture deals in the first quarter, up from 26% in the fourth quarter of 2013.  The average expansion stage deal was $14.3 million, up dramatically from $10.3 million in Q4 2013.

Investments in later stage deals increased 15% in dollars but declined 12% in deals, with $2.5 billion going into 185 rounds in the first quarter.  Later stage deals accounted for 19% of total deal volume in Q1, identical to the prior quarter when $2.2 billion went into 211 deals.  The average later stage deal in the first quarter was $13.8 million, up from $10.5 million in the prior quarter.

First-time financing (companies receiving venture capital for the first time) dollars decreased 25% to $1.2 billion in Q1, while the number of companies fell 24% from the prior quarter to 271.  First-time financings accounted for 13% of all dollars in Q1, the lowest percentage total in the history of the survey. Companies receiving VC funding for the first time in Q1 accounted for 28% of all deals, which is the lowest percentage total since Q3 2009.

First-time financings in the life sciences sector fell 38% in dollars from the prior quarter to $258 million going into 36 companies. The average first-time deal in the first quarter was $4.4 million, approximately the same as the prior quarter.  Seed/early stage companies received the bulk of first-time investments, capturing 78% of the dollars and 82% of the deals in the first quarter of 2014.