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Venture Capital Investment Increases in Q3 2009 Driven by Clean Technology Sector
Software Sector Falls in Industry Ranking While Life Sciences Remains Strong
| Source: NVCA
WASHINGTON, DC--(Marketwire - October 20, 2009) - Venture capitalists invested $4.8 billion in
637 deals in the third quarter of 2009, according to the MoneyTree™
Report from PricewaterhouseCoopers LLP (PwC) and the National Venture
Capital Association (NVCA), based on data provided by Thomson Reuters.
Quarterly investment activity increased 17 percent in terms of dollars, but
fell 3 percent in number of deals compared to the second quarter of 2009
when $4.1 billion was invested in 657 deals. The increase in dollars
invested was driven by several large rounds in the Clean Technology sector,
one of which is the ninth largest deal since 1995. The Life Sciences
sector (biotechnology and medical device industries combined) also had a
solid quarter relative to other industry sectors, leaving Software as the
third highest investment sector, a notable decline in industry ranking.
"The increase in venture capital investing this quarter is very
encouraging," noted Tracy T. Lefteroff, global managing partner of the
venture capital practice at PricewaterhouseCoopers LLP. "With the signs
pointing to an economic recovery, albeit a slow one, we're likely to see
the pace of investing continue to strengthen over the next several quarters
as long as the IPO markets begin to open up and M&A activity increases.
And, as predicted last quarter, we expect to see annual investments for
2009 exceed the $15 billion mark given the continued strength we saw in
investing this quarter."
"The third quarter illustrates a gradual and deliberate industry shift
towards a longer term venture capital investment strategy," said Mark
Heesen, president of the NVCA. "Venture capitalists are becoming
increasingly focused on industry sectors which require multiple rounds of
financing for an extended time horizon. Companies in areas such as Clean
Technology and Life Sciences require significant capital and expertise
often over a 10 - 12 year period, resulting in more follow on rounds,
higher average investment levels, and a longer average time to a successful
exit. This is not to suggest that the venture capital industry will
abandon shorter term IT investment. Rather, the mix of investments will
become much more balanced."
Industry Analysis
The Biotechnology industry received the highest level of funding for all
industries in the quarter with $905 million going into 104 deals. This
level of investment represents a 4 percent decrease in dollars and a 16
percent increase in deals compared to the second quarter when $947 million
went into 90 deals. Medical Devices and Equipment saw a 6 percent decline
in dollars and 15 percent decline in deal volume in the third quarter with
$617 million going into 71 deals. This sector ranked fourth overall for the
quarter.
While the Software industry had the most deals completed with 128 rounds,
it fell to third place in terms of dollars invested at $622 million,
representing a 9 percent decrease in both dollars and deal volume from the
second quarter when $680 million went into 141 rounds. The drop in dollars
in the third quarter puts Software at its lowest level of investment since
the third quarter of 1996.
The Clean Technology sector, which crosses traditional MoneyTree industries
and comprises alternative energy, pollution and recycling, power supplies
and conservation, saw an 89 percent increase in dollars over the second
quarter to $898 million. The number of deals completed in the third
quarter increased 16 percent to 57 deals compared with 49 deals in the
second quarter. The increase in Clean Technology investments was driven by
several large rounds, including three of the top 10 deals.
Internet-specific companies received $843 million going into 148 deals in
the third quarter, a 42 percent increase in dollars and a 15 percent
increase in deals over the second quarter of 2009 when $594 million went
into 129 deals. 'Internet-Specific' is a discrete classification assigned
to a company with a business model that is fundamentally dependent on the
Internet, regardless of the company's primary industry category.
Ten of the 17 MoneyTree sectors experienced dollar declines in the third
quarter, including Semiconductors (14 percent decline to another 10-year
low), Healthcare Services (57 percent decline), Computers and Peripherals
(40 percent decline) and Telecommunications (17 percent decline). Sectors
which saw increases in dollars included Media and Entertainment (269
percent increase), Networking and Equipment (18 percent increase), and
Electronics/Instrumentation (55 percent).
Stage of Development
Seed and Early stage investments continued to grow in the third quarter in
terms of number of deals, with $1.6 billion going into 284 rounds. This
represents an 11 percent increase in deal volume and a 4 percent decrease
in dollars over the second quarter when $1.66 billion went into 255 deals.
Seed/Early stage deals accounted for 45 percent of total deal volume in the
third quarter, compared to the second quarter when it accounted for 39
percent of all deals. The average Seed deal in the third quarter was $5.9
million, down significantly from $9.6 million in the second quarter;
however, the Q2 average Seed deal size was skewed due to a single large
deal. The average Early stage deal was $5.5 million in Q3, down slightly
from $5.6 million in the prior quarter.
Expansion stage dollars increased 27 percent in the third quarter, with
$1.6 billion going into 185 deals. Overall, Expansion stage deals
accounted for 29 percent of venture deals in the third quarter, roughly the
same percentage as in the second quarter of 2009. The average Expansion
stage deal was $8.7 million, up from $6.6 million in the second quarter of
2009.
Investments in Later stage deals increased 35 percent in dollars but fell
20 percent in deals to $1.6 billion going into 168 rounds. Later stage
deals accounted for 26 percent of total deal volume in Q3, compared to 32
percent in Q2 2009 when $1.2 billion went into 210 deals. The average
Later stage deal in the third quarter was $9.6 million, which increased
significantly from $5.7 million in the prior quarter.
First-Time Financings
First-time financing (companies receiving venture capital for the first
time) dollars decreased 20 percent while the number of first-time deals
remained flat with $633 million going into 155 deals. This represents the
lowest dollar level of first-time deals in survey history. First-time
financings accounted for 13 percent of all dollars and 24 percent of all
deals in the third quarter, compared to 19 percent of all dollars and 24
percent of all deals in the second quarter of 2009.
Companies in the Software, Biotechnology, and Industrial/Energy industries
received the highest level of first-time dollars. The average first-time
deal in the third quarter was $4.1 million compared to $5.1 million one
quarter ago. Seed/Early stage companies received the bulk of first-time
investments, garnering 66 percent of the dollars and 68 percent of the
deals, but fell short of second quarter percentages when they accounted for
76 percent of the dollars and 73 percent of the deals.
MoneyTree Report results are available online at www.pwcmoneytree.com and
www.nvca.org.
About the PricewaterhouseCoopers/National Venture Capital Association
MoneyTree™ Report
The MoneyTree™ Report measures cash-for-equity investments by the
professional venture capital community in private emerging companies in the
U.S. It is based on data provided by Thomson Reuters. The survey includes
the investment activity of professional venture capital firms with or
without a U.S. office, SBICs, venture arms of corporations, institutions,
investment banks and similar entities whose primary activity is financial
investing. Where there are other participants such as angels, corporations,
and governments, in a qualified and verified financing round the entire
amount of the round is included. Qualifying transactions include cash
investments by these entities either directly or by participation in
various forms of private placement. All recipient companies are private,
and may have been newly-created or spun-out of existing companies.
The survey excludes debt, buyouts, recapitalizations, secondary purchases,
IPOs, investments in public companies such as PIPES (private investments in
public entities), investments for which the proceeds are primarily intended
for acquisition such as roll-ups, change of ownership, and other forms of
private equity that do not involve cash such as services-in-kind and
venture leasing.
Investee companies must be domiciled in one of the 50 U.S. states or DC
even if substantial portions of their activities are outside the United
States.
Data is primarily obtained from a quarterly survey of venture capital
practitioners conducted by Thomson Reuters. Information is augmented by
other research techniques including other public and private sources. All
data is subject to verification with the venture capital firms and/or the
investee companies. Only professional independent venture capital firms,
institutional venture capital groups, and recognized corporate venture
capital groups are included in venture capital industry rankings.
The National Venture Capital Association (NVCA) represents more than 400
venture capital firms in the United States. NVCA's mission is to foster
greater understanding of the importance of venture capital to the U.S.
economy, and support entrepreneurial activity and innovation. According to
a 2009 Global Insight study, venture-backed companies accounted for 12.1
million jobs and $2.9 trillion in revenue in the U.S. in 2008. The NVCA
represents the public policy interests of the venture capital community,
strives to maintain high professional standards, provides reliable industry
data, sponsors professional development, and facilitates interaction among
its members. For more information about the NVCA, please visit
www.nvca.org.
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