Despite the steady beat of news predicting the demise and destruction of the venture capital asset class, could the reports of venture capital’s death be greatly exaggerated? Q2 2009 offers some hope as evidenced by a quarter over quarter bounce in investment by venture capital firms. With the numbers tallied, Q2 2009 saw 61% more money flowing from venture capital investors to entrepreneurs over the prior quarter. Yes, we acknowledge this growth (1) comes off multi-year lows in Q1, (2) that a single data point doesn’t make for a trend and hence a recovery and (3) that investment levels are approaching what they were in prior quarters of 2008. But, as the highlights below demonstrate, the healthy bounce back is still noteworthy.

Q2 2009 highlights

Dollars invested WAY up - Deal value totaled $5.329 billion in Q2 2009. This represents a nearly 61% increase over the $3.314 billion of investment ChubbyBrain tracked in Q1 2009. The idea that investment levels might inch up slowly from Q1 2009 levels appears to have been disproven with this healthy single quarter jump.

Whether this quarter is the start of an upward trend, a blip up on the way to further retrenchment or the creation of a new investment level plateau remains to be seen.

Broad geographic participation (but California dominates) - Thirty-four different US states housed companies receiving venture money. However, California dominated based on number of deals and dollars invested with Massachusetts, Washington, New York and Colorado rounding out the top five.

Money IS available for early stage startups - Despite conventional wisdom that venture firms would invest only to fortify existing portfolio companies, the quarter saw healthy levels of early stage investment in Seed and Series A rounds accounting for 35% of the number of deals. For early stage entrepreneurs (with the right business ideas, experience, etc), VC checkbooks don’t appear to be frozen.

Healthcare startups looking good - While there was broad-based industry participation with funding going to 10 different sectors and 55 different industries, the healthcare sector saw the greatest level of funding garnering 37% of investment dollars.

Silicon Valley venture capital firms are the most active - Several hundred venture firms participated in deals in the quarter. Similar, however, to the company geographic breakdown, nine of the ten most active venture firms in the quarter call The Valley home.

Select graphs for the quarter are given below along with a larger nine page report embedded (docstoc) which contains more detail and charts for Q2 2009 venture capital activity below these graphs.

Q2 2009 - Venture Capital Investment Jumps 61%. Is the Worst Over? -