Venture capital investment into US headquartered companies climbed 8 per cent in the first quarter of 2007 compared to the same period last year to reach USD 6.96 billion, according to the
Venture capital investment into US headquartered companies climbed 8 per cent in the first quarter of 2007 compared to the same period last year to reach USD 6.96 billion, according to the Quarterly Venture Capital Report released today by Dow Jones VentureOne and Ernst & Young LLP. The report showed that deal count reached 584 deals for the quarter, down by 31 deals from the first quarter of 2006.
Coming off a five-year high for both deals and investment in 2006, the report indicated that momentum for the venture capital market is continuing in 2007. The notable trends in the first quarter include a significant level of early-stage activity with investors financing proportionally more seed- and first-round deals and dramatically increasing investing in life sciences. In fact, the USD 2.88 billion invested in healthcare companies in the first quarter was the highest investment level on record.
‘Q1 was a strong quarter for venture investment across the board. A reasonably good exit climate for venture-backed companies, via both initial public offerings and mergers and acquisitions, has opened the door for more companies to secure venture capital financing,’ said Joseph Muscat, Americas Director of the Ernst & Young Venture Capital Advisory Group ‘The record level of investment in healthcare, driven significantly by activity in the biopharmaceuticals sector and a strong exit environment for these companies, is a major driver of venture activity.’
Emerging and Established Venture-Backed Industries:
While companies identified as alternative energy and environmental technologies make up only a small portion of overall venture capital activity, both of these sub-segments showed significant growth in the first quarter, according to the quarterly report. For example, USD 237.0 million was invested in 10 alternative energy deals in the first quarter, compared to USD 53.8 million and six deals in the first quarter of 2006. There was also USD 54.1 million invested in eight environmental companies in the first quarter of 2007, compared to USD 4 million invested in one deal a year ago, the data showed.
Venture capital investment in healthcare showed the most significant uptick of the major venture-backed industries, the quarterly report found. There were 167 healthcare deals in the first quarter of 2007, 15 more than were completed a year ago. An additional USD 1.13 billion more was invested in this category, bringing the total for the quarter to USD 2.88 billion, a 65% increase over the first quarter of 2006.
‘Driven perhaps by the therapeutic innovations around cancer, heart disease and other internal medicines intended for an aging baby-boomer population, the biopharmaceutical segment recorded its largest quarter to date with USD 1.79 billion invested, practically double the amount invested in the same quarter a year ago,’ said Jessica Canning, Director of Global Research at VentureOne. Among those financings was the largest of the quarter: the USD 175 million second round for EUSA Pharma of King of Prussia, Penn., a developer of specialty pharmaceuticals for the European market. ‘Along with other significantly sized healthcare deals, there was also a great deal of interest in early-stage healthcare investing, representing about 38% of the deals that were funded in this category.’
For information technology, deal flow and investment declined from a year ago, the quarterly data showed. There was USD 3.12 billion invested in 336 technology companies in the first quarter of 2007, down 16% and 8%, respectively, from the same quarter of 2006. Within the IT category, only the information services segment, which includes many of the Web 2.0 innovations, reported an increase with 16 more deals than a year ago and 10% more capital, bringing the total investment here to USD 722.5 million into 91 deals.
Deal Sizes and Early-Stage Financings Continue to Increase:
The quarterly report also identified the continuation of two other trends that surfaced in recent quarters-the increasing size of venture capital deals and the proportional increase in early-stage investment. The median deal size reached USD 8 million, up from USD 7 million in the first quarter of 2006 and making it the highest quarterly median round size since the fourth quarter of 2000. By industry, healthcare financings had the largest medians at USD 12.7 million, followed by information technology financings at USD 7 million and business, consumer and retail financings at USD 6 million.
By round class, early-stage financings made up 37% of overall deal flow in the first quarter, holding steady with the increased proportion of seed- and first-round deals reported throughout 2006. Later-stage rounds made up 34% of the total venture capital rounds in the quarter and second rounds made up 24%.
Regional Perspectives:
California dominated the venture capital activity in the first quarter, representing 44% of the nation’s deal flow and 48% of the capital invested. The report showed that by major regions, the San Francisco Bay Area remained a stronghold for venture capital with 189 deals and USD 2.20 million invested. Although this is seven fewer deals than completed in the first quarter of 2006, the capital investment increased 10%.
For the third quarter in a row, Southern California saw more capital investment than New England. In total, USD 1.10 billion was invested in 66 deals. This is the first time Southern California investment has topped USD 1 billion in a single quarter since 2000.
New England remains the second most active region of the country in terms of deal flow, with 73 completed financings, which raised USD 927.9 million.
The New York metropolitan area declined slightly, with USD 320.1 million invested here in the first quarter, down 38% from the same quarter of 2006. Deal flow, at 39, was basically flat with the same period.
Investment in Washington state increased 21% over the same quarter a year ago to total USD 397.1 million in 27 deals.
Capital investment more than doubled in the Research Triangle region although deal flow was flat, with a total of 11 deals and USD 202.8 million invested in the first quarter.
Texas also posted an increased in capital investment, by 17% to USD 280.8 million, although there were seven fewer deals than in the first quarter of 2006.
Note: The investment figures included above are based on aggregate findings of VentureOne’s proprietary US research and are contained in VentureSource. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.
