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CleanTech VC investments on the rise during 2008 while life sciences lags

Venture capital is the lifeblood of new companies in the U.S. It has become more risk adverse in recent years with angel capital beginning to takeover its role in getting early stage companies funded. Nevertheless, the flow of Venture Capital monies continues to be the primary measurement of how we measure the growth of new companies in the U.S.

2008 wasn't the best of years for venture capital. According to National Venture Capital Association (NVCA) and PriceWaterhouse Coopers' MoneyTree Report which tracks deal flow from venture capital on a quarterly basis, U.S. VC's invested $28.3 billion in 3,808 deals, or about $7.4 million/deal during 2008. This volume represented the first decline of total investments since 2003: an 8% decrease in dollars and a 4% decrease in deal volume versus 2007. The 4th quarter of 2008 took a particularly sharp drop of 28% versus the prior quarter.

Although there was gloom in the overall VC landscape, one bright spot was the CleanTech, a relative newcomer to the categories of investment. CleanTech includes: alternative energy, pollution and recycling, power supplies, and conservation.

U.S. Venture Capital Investments ($ Billions by Sector)

Sector 2008 Investments
($ B)
% Change Vs. 2007 # of Deals Average Deal Size
($ M)
Life Sciences* $8.0 <15%> 853 $9.4
Software $4.9 <10%> 881 $5.6
Internet $4.9 - 825 $5.9
Clean Tech $4.1 +52 277 $14.8
Media & Entertainment $2.0 +3% 407 $4.9
IT Services $1.8 +17% 262 $6.9
Telecommunications $1.7 Decline N/A N/A
Semiconductor $1.7 Decline N/A N/A
TOTAL $28.3 <8%> 3,808 $7.4

Source: www.pwcmoneytree.com
*Life Sciences = Biotechnology and Medical Devices
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A sea of red prevailed for many of the sectors, but surprisingly CleanTech was not the only sector which reported gains in investment; two other sectors reported gains. Of note with the Clean Tech deals is that the average deal size was the largest of any sector. The decline in the Life Sciences sector, however, was one of the most dramatic.

Another way in which the PWCMoneyTree Report analyzes venture capital investment is by stage of development of companies. It classifies companies into 4 different stages of company development and tracks the investment flows into each of these development stages. Let's take a look at how these investments traced during 2008.

U.S. Venture Capital Investment by Company Stage of Development - 2008

Company Development Stage 2008 Investment ($B) % of Total % Change Vs. 2007 # of Companies Average Company Funding ($M)
Seed Stage $1.5 5.3% +19% 440 $3.4
Early Stage $5.3 18.8% <4%> 1,036 $5.1
Later Stage $10.8 38.3% <13%> 1,177 $9.2
Expansion Stage $10.6 37.6% <9%> 1,178 $9.0
TOTAL $28.2 100% <8%> 3,831 $7.36

Source: www.pwcmoneytreereport.com

Of note here is that the earliest level of funding, Seed Stage, was on the rise during 2008, and that the next level, Early Stage, declined but not nearly as much as the later stages of funding. Both Seed and Early Stage represented some 24% of total funding, an important trend. Not only did Seed Stage rise so dramatically, but also represented the highest percent of overall funding since 2000.

In the next article, we will try to look at the specifics of this VC funding on the Midwest and other regions. VC funding for 2009, at this juncture, is expected to decline versus 2008, as U.S. VC's are closely monitoring their existing investments (for follow-on financing) and being very circumspect on new investments. The Clean Tech growth trend is expected to continue for 2009.

See you soon!

Recent articles by Michael Rosen
Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services, including financing and business and corporate development to start-up and early-stage life science companies such as Renovar and Immune Cell Therapy. Rosen also is a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at rosenmichaels@aol.com.

This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.


Comments

Girish responded 5 years ago: #1

Hello Michael,
Very informative. BTW, why don't you use charts instead of tables. May be you could use iCharts.net

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