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US venture investment nears pre-recession levels

Venture investors put USD7.7bn to work in 744 deals for US-based companies during the second quarter of 2010, according to statistics from Dow Jones VentureSource.

This is the highest quarterly total for capital invested since USD8.4bn was put into 699 deals during the third quarter of 2008.

"Fueled by investors’ need to keep current portfolio companies funded and to begin investing from new funds, venture capital financing had a strong quarter," says Jessica Canning, global research director for Dow Jones VentureSource. "Deal activity and capital invested in venture-backed companies is once again near levels seen before the start of the economic recession in 2008."

The second quarter’s deal count represents a 13 per cent increase from the 656 deals closed during the same period last year, and capital raised is up 26 per cent from the USD6.1bn invested in the year-ago period.

Information technology and healthcare continued to be the strongest industries for deals closed and dollars invested though no clear leader emerged as IT garnered the largest proportion of deals but Healthcare claimed more dollars.

Scott Austin, editor of Dow Jones VentureWire, says: "Venture investment in healthcare companies has gained momentum over the last several years, a trend that is likely to continue. One catalyst for recent growth is venture firms placing a premium on drug development companies nearing commercialization, requiring large sums to get their drugs through Phase III trials."

Healthcare companies raised USD2.7bn for 201 deals, a 13 per cent increase in capital raised from the USD2.4bn put into 189 deals during the second quarter of 2009. Within healthcare, the biopharmaceuticals sector continued to see the highest level of activity. Ninety-five biopharmaceuticals deals raised USD1.2bn, a 30 per cent increase in deals but slight drop in capital raised from the same period last year.

In IT, 231 deals raised USD1.9bn, up from the second quarter of 2009, which saw 208 deals raise USD1.6bn. Software garnered the largest slice of capital as 156 deals raised USD908m, up from the 132 deals that raised USD761m in the second quarter of last year.

The energy and utilities industry garnered USD1.1bn for 26 deals during the second quarter. Deals were on par with the year-ago period, but capital raised jumped 86 per cent thanks to a few large, later-stage deals. The energy and utilities industry claimed the nation’s largest deal in the second quarter – a USD350m round raised by Better Place, a Palo Alto, California-based company that provides support infrastructure for electric vehicles.

The business and consumer services industries also saw growth. In business and financial services, 117 deals raised USD814m, up from 96 deals that raised USD707m in the year-ago period. In consumer services, 120 deals raised USD847m, up from 89 deals that garnered USD644m during the second quarter of 2009.

Investment in the Web-heavy consumer information services sector, part of the consumer services industry, rose 45 per cent as 92 deals raised USD710m. This sector also bucked the trend toward later-stage deals as 57 per cent of consumer information services deals were for seed- and early-stage rounds, making consumer services the only industry group with over half of investments going to early-stage deals.

Later-stage deals accounted for 44 per cent of the second quarter’s deals and 62 per cent of total capital raised. This is up from the 39 per cent of deals and 56 per cent of capital that later-stage deals claimed in the same period last year.

Seed and first-rounds accounted for 32 per cent of deals and claimed 15 per cent of capital raised during the most recent quarter, down from the same period last year when early-stage rounds accounted for 35 per cent of deal activity and 19 per cent of capital raised.

The median deal size for the second quarter of 2010 was USD4.9m, down slightly from the USD5m seen in the same period last year.

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