Venture capital investment in US companies slipped 7 per cent in the first quarter of 2008 compared with the same period last year to USD6.84bn, according to the Quarterly Venture Capital
Venture capital investment in US companies slipped 7 per cent in the first quarter of 2008 compared with the same period last year to USD6.84bn, according to the Quarterly Venture Capital Report released today by data provider Dow Jones VentureSource.
The deal count reached 603 deals for the quarter, down by 25 from the first quarter of 2007 and the lowest quarterly total since the first quarter of 2005. But despite showing the first down quarter in nearly three years, the report gives no indication that momentum within the venture capital market is slowing due to the slumping economy.
‘While we are watching closely to see if the slowdown in the overall economy will infect the venture capital community, it’s simply too early to know for sure,’ says Jessica Canning, director of global research for Dow Jones VentureSource.
‘The venture industry is usually insulated from the immediate effects of an economic downturn. The first quarter may have been a down quarter compared to last year, but USD6.84bn still represents a very healthy amount of investment and there are some encouraging signs in areas like IT, energy, and business, consumer and retail.’
Notable trends in the first quarter include a significant jump in deal activity and investment in the information services sector, which includes the majority of today’s web-related companies, as well as a dramatic dip in life sciences investing. In particular, the information service sector saw a record USD1.59bn invested in 170 deals, an increase of 104 per cent over amounts invested during the same period of 2007.
Health care was the only industry to record an overall decline in investment during the first quarter with USD1.74bn invested in 142 deals, 43 per cent less than the USD3.06bn invested in 175 deals during the first quarter of 2007. The majority of the decline was in the biopharmaceuticals sector, which saw just 59 deals completed and USD771m invested, a 59 per cent drop-off from USD1.89bn invested in 2007. The medical devices sector recorded a 15 per cent decline in investments, with USD866m put into 67 deals.
‘The health care industry may be the first to show signs that the broader public markets may be affecting venture investment, as IPOs are normally the preferred exit for venture-backed biotech companies,’ Canning says.
‘However, health care is a highly cyclical market and our analysis shows that the current drop in biotech funding is not due to an overall pullback but is more a result of there simply being fewer large-sized deals. Of the top 20 deals in the first quarter, only two were health care deals. Over the last couple of years, health care has accounted for closer to half of the top deals each quarter.’
The largest health care deal of the quarter involved TriVascular2 of Santa Clara, California, which raised a USD65m first round to fund development of a device to treat abdominal aortic aneurysms.
The information technology industry recorded a strong quarter with USD3.88bn invested in 373 deals, up 20 per cent over the USD3.24bn put into 358 deals in the first quarter of last year. For the first time on record, the software sector did not account for the most IT investment as it trailed behind information services.
Software posted a 1 per cent gain over the previous first quarter with USD1.22bn invested in 131 deals. Highwinds Network Group of Winter Park, Florida, a provider of IP services and content distribution platforms, closed one of the largest IT deals of the quarter with a USD55m first round.
The business, consumer and retail industry saw a 29 per cent increase in investment as venture capitalists put USD677m into 54 deals. Most notable were the 10 deals in the web-heavy media, content and information sub-sector, which attracted a record USD236m, more than in the whole of 2007. The largest deal for the industry belonged to Brisbane, California-based Glam Media, which raised over USD64m for its women’s fashion web site.
Companies developing clean technologies continue to attract steady interest from investors, the report showed. Although ‘cleantech’ cuts across all industries, the majority of these companies can be found in the energy, agriculture, and advanced specialty chemicals and materials segments.
In total, companies in these sectors accounted for 34 deals and nearly USD532m worth of investment, on a par with levels recorded over the same period of 2007. The energy sector saw the bulk of investment, with USD368m put into 22 deals during the first quarter.
The report also identified the continuation of a recent trend toward growing investment in later-stage companies. Later-stage rounds accounted for 39 per cent of all venture financings in the first quarter, up from 32 per cent in the same quarter of 2007. By comparison, the proportion of seed and first rounds fell from 42 per cent in the first quarter of 2007 to 35 per cent. Second rounds held steady at roughly 22 per cent of the deal total.
According to the data, the median deal size reached USD7.1m in the first quarter, up from USD7m in the first quarter of 2007 but below last year’s record annual median of USD7.5m. By industry, healthcare financings had the largest medians at USD9.3m, followed by business, consumer and retail at USD8.75m and IT financings at USD6.5m.
