U.S. companies continued to attract significant venture capital investment in the second quarter of 2007, as venture financings reached $7.4 billion, an increase of 8 percent over the same period last year, according to the Quarterly Venture Capital Report by Ernst & Young LLP and Dow Jones VentureOne.
The quarterly deal count also rose 8 percent to reach 717 deals, the highest deal volume since 2001.
This marks the ninth straight fiscal quarter of year-over-year growth in venture capital invested. One of the most notable trends of the quarter was the continued diversification in life sciences investments, particularly with medical devices, which saw investments skyrocket to $1 billion in 75 deals, the highest totals on record and 58 percent above the second quarter of 2006.
Biopharmaceutical companies, the perennial favorites of health care investors, attracted $1.1 billion invested in 86 deals. Overall, health care companies received $2.4 billion in financing, a total second only to the $2.9 billion invested in the first quarter of 2007.
“For more than two years, we’ve seen steady growth in the amount of venture capital invested and the promising liquidity markets-on the public exchanges for technology companies and primarily in mergers and acquisitions for health care companies-look to be driving investor optimism,” said Jessica Canning, Director of Global Research at VentureOne.
“Health care continues to attract nearly one-third of all venture capital dollars and medical device companies, interestingly, are converging with biopharmaceuticals as a major draw for investors.”
Information Services Companies Continue as VC Favorites
Information technology companies accounted for the largest slice of the venture capital pie in the second quarter, attracting 10% more capital than during the same period last year with $4.1 billion invested in 435 deals.
As has been the case since 2002, software received the bulk of IT investment, this time with 179 deals accounting for $1.5 billion. Though deals are down 8%, this is on par with the amount invested in software companies in the second quarter of 2006.
However, the quarterly data showed that, for the first time ever, information services companies came just shy of raising $1 billion in venture capital financing, garnering $979 million in 131 deals in the second quarter.
This is an increase of 56 percent in deals and 52 percent in dollars invested over the second quarter of 2006. The information services segment includes IT-based services, such as database design and construction, as well as online services, such as social networks, blogs, wikis and other Web 2.0 companies.
“This is the second quarter in a row that we’re seeing a record number of deals being done in the information services space, and this is due in part to the high-profile liquidity events we’ve seen over the last year,” said Joseph Muscat, Americas Director of the Ernst & Young Venture Capital Advisory Group.
“With Web 2.0 companies able to fully develop products and begin generating revenues very quickly with comparatively small amounts of capital, they are certainly seen as lower-cost investments with a high potential for return.”
The communications and networking segment of IT had the same number of deals (62) as in the second quarter of 2006 but saw investment climb 23 percent to $839 million. This is due to the $113 million in financing raised by Boulder, Co.-based FreeWave Technologies, a developer of ISM band radios and wireless data solutions, which had the largest deal of the quarter.
For business, consumer and retail companies, deals and investment declined from a year ago, the quarterly data showed. There was $519 million invested in 61 of these companies in the first quarter of 2007, down from $557 million and 62 deals during the same period in 2006.
Trends: Deals Bigger, Up Across All Stages
The quarterly report also highlights the trends of larger deal sizes and more money going toward second-round and later-stage investments. The median deal size in the second quarter of 2007 reached $8 million, up from the $7.4 million seen during the same time last year and the highest median seen since 2000. By industry, healthcare financings had the largest medians at $9 million, followed by information technology at $8 million and business, consumer and retail at $4.9 million.
By round class, deals were up across all stages. Early-stage deals accounted for 36 percent of overall deal flow with 254 financings in the second quarter, up 17 percent from the same period in 2006. Later-stage financings made up 41 percent of the total with 253 financings, the largest number of deals in more than six years. Second rounds accounted for 23 percent with 160 deals, the highest total since 2002.
For more see: www.ventureone.com
Southeast Venture Conference, February 29 – March 1, 2012 at the Ritz Carlton in Tysons Corner, VA – Where Smart Money Meets Smart People.
www.seventure.org
© 2007, TechJournal South. All rights reserved.
