Seed and early stage lead in US-VC dollars and deals
US VCs rebounded with $7.1 billion investments in 977 deals in Q2’07. US VCs also invested record amounts in seed and early stage technology companies, resulting in a 31 percent increase from the prior quarter. This is the highest level for numbers of deals since the bubble era of Q3’01, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial.
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“The data implies good news all around for the venture capital industry which has been extremely active in doing what we do best – building companies from the ground up,” said Mark Heesen, president of the US-National Venture Capital Association. “Not only does the increase in seed and early stage deals demonstrate the number of young, promising opportunities available, but the diversity of investment strongly suggests that the prospects for innovation are all around us. The industry is not relying on one particular sector for deals. Even better, dollars invested are holding steady or even declining, suggesting that venture capitalists are being very measured about how much money they invest per company.”
VCs invested $1.6 billion in 378 deals
According to the PwC/NVCA MoneyTree Report, seed and early stage investing had the strongest quarter since 2001 in both number of deals and dollars invested. Venture capitalists invested $1.6 billion into 378 deals in the second quarter compared to $1.3 billion into 289 deals in the first quarter of 2007. Higher propensity of internet and software deals resulted in lower than average per deal investments at $4.23 million, versus $4.49 million in the previous quarter. Seed/early stage deals accounted for 39 percent of total deal volume in the second quarter compared to 34 percent in the first quarter.
Expansion stage deals also showed a notable increase in the number of deals but a decrease in dollars invested. Investment for the second quarter in expansion stage deals was $2.4 billion in 303 deals, representing 31 percent of deal volume. This compares to the first quarter when $2.9 billion was invested in 287 expansion stage deals, representing 34 percent of total deal volume.
Later stage deals held fairly steady in volume but decreased in terms of dollars in the second quarter with $3.1 billion going into 296 later stage deals. This represented 30 percent of total investments. In the first quarter, $3.2 billion went into 269 later stage deals, representing 32 percent of the volume.
72% of Q2 deals in first-time financings
The number of companies receiving venture capital funding for the first time was at the highest deal and dollar level since 2001. Venture capitalists put $1.8 billion into 340 first-time deals in the second quarter compared to $1.7 billion into 252 deals in the first quarter.
Seed/early stage companies received the bulk of first-time investments garnering 57 percent of the dollars and 72 percent of the deals. Companies in software, medical devices and industrial/energy received the highest level of first-time dollars. Other industries in which venture capitalists placed more bets this quarter were biotechnology and telecommunications.
The average first-time financing for the second quarter was $5.2 million compared to $6.7 million in the first quarter. This decrease in average rounds is consistent with venture capitalists investing fewer dollars into more deals.
Strongest quarter for software sector
The software sector had its strongest quarter since 2001 with $1.5 billion going into 248 deals, regaining its position as the single largest industry sector for the quarter. In the previous three quarters, the biotechnology sector represented the most dollars invested.
Other industry sectors which saw increases in both dollars and deals include consumer products and services, networking & equipment, semiconductors, industrial/energy and computers & peripherals.
The life sciences sector (biotechnology and medical devices combined) had another strong quarter with $2.2 billion going into 223 deals. Though down slightly in dollars from the first quarter, which was the highest quarterly dollar amount ever recorded for life sciences deals at $2.6 billion, the life sciences sector had the most active quarter in history in the second quarter, with the deal volume reaching an all-time high. Both biotechnology and medical devices saw a decrease in dollars but an increase in deals for the quarter.
One large clean tech deal
The clean tech sector, which crosses traditional MoneyTree sectors and comprises alternative energy, pollution and recycling, power supplies and conservation, saw $451 million going into 44 deals in the second quarter. This represented a 38 percent increase in the number of deals and 46 percent increase in dollars, partially attributed to a $73 million investment in a solar energy company, also the largest deal of the quarter.
Web 2.0 not yet a bubble
Internet-specific companies captured $897 million going into 160 deals in the second quarter, a marked decrease from the first quarter when $1.4 billion went into 177 deals. The decrease in Internet investing activity negates theories that a new ‘bubble’ is forming.
International investing
The PwC/NVCA MoneyTree report also separates out figures for deals by US-VCs in India and China. In the second quarter of 2007, U.S.-based venture capitalists invested $408 million into 34 deals in China representing the highest dollar amount invested since 2003. Also in the quarter, U.S. venture capitalists invested $119 million in 18 deals in India. These figures are reported separately and are not included in the aggregate totals above.
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