Though VC investing is down, reloading on new funds is rising

Though VC investing is down, reloading on new funds is rising

When last we met a week ago, we took a look at the PricewaterhouseCoopers quarterly report on venture capital investments in the U.S. for the third quarter of 2003. As part of this analysis, we look at VC activity in the life science sector as well as activity in the Midwest region.
This week, let’s take a look at VC investments by company stage of development to see if there are any trends over time. Ready? Here we go!

The definition of these stages by PricewaterhouseCoopers doesn’t exactly correlate with conventional definitions, which usually incorporate Series A through D and mezzanine financing.
I’m assuming that “early stage” funding would be equivalent to a Series A funding, “expansion stage” funding would be a combination of Series B, Series C and Series D funding and “late stage” would be mezzanine funding or usually the last funding that happens before a company goes public.
The striking trend that pops up is:
1. The decline in start-up and seed funding over the six-year period, which drops from about 6 percent of all funding down to 1 percent.
2. The significant drop in actual dollar amounts invested over the six-year period.
This trend impacts the Midwest to a great degree as most of the region’s companies are in the start-up or seed “bucket” of development.
On the other hand, later-stage funding increased from about 16 percent of total VC investment to almost double this number (29 percent) over the six-year period. Does this mean that VCs are becoming more risk adverse and waiting to invest their money when an IPO is in sight for a quick departure?
While we’re at this juncture, let’s take a glimpse at the number of deals and deal size by company stage of development.

It’s obvious that deal sizes have ratcheted down substantially at all levels over the six-year period with the biggest drop in the start-up and seed segment. Likewise, the number of all over deals has dropped by more than 50 percent during this period.
Does this mean there are less VCs or does this mean they are getting pickier in the deals they’re choosing (or both)? From my own vantage point, Midwest deals are usually smaller than those on the two coasts. A typical Midwest life science start-up or seed deal is typically under $1 million.
Though I wanted to look at VC activity in the Midwest life science sector, this information isn’t yet available on MoneyTree and it’ll have to wait for a future column.

VCs Reloading

While I have spent some time talking about what and where VCs are spending their money this year, one interesting article in last week’s Wall Street Journal chronicled the monies VCs have been raising this year via new funds. The Journal says that 46 VC funds raised $5.5 billion in commitments during the third quarter versus $3.1 billion raised by 51 funds during the second quarter of 2004.
For the first nine months of 2004, 125 funds have raised $11.2 billion. Interestingly, 33 of these funds were raised by new venture firms.
According to the National Venture Capital Association, 42 percent of these VC funds will target early and seed-stage investments. Perhaps the pendulum is swinging back. The Midwest will hopefully benefit from this trend. It does appear that there seem to be more early stage and seed funds in the Midwest now versus two to three years ago.

Midwest Biotech Events

If you saw my column a few weeks ago, you noticed that lots of Midwest biotech events will close out the year (starting on Tuesday):
1. There’s the “First Annual Midwest Life Sciences Meeting” in Indianapolis, which is being put on by BioCrossroads and Burrill & Company. This will be held on Tuesday.
2. IBIO’s “Lunch With Midwest Agroscience: The Impact of Biotechnology” is being held at the University of Illinois at Urbana-Champaign at the College of Agricultural, Consumer and Environmental Sciences on Monday, Nov. 15.
This forum will include not only experts from the university’s ag school but Purdue’s ag school, the U.S. Department of Agriculture, two Illinois ag biotech companies and Dow Agrosciences. It should provide insight on cutting-edge ag biotechnology in the Midwest.
3. The Wisconsin Technology Council’s “Wisconsin Life Sciences and Venture Conference” will be held in Madison on Nov. 16 and 17.
I understand that 36 life science companies from all over the Midwest will be represented at this event, which I believe is in its 20th year. This is probably the longest event of this sort in the Midwest. The event is expected to draw not only Midwest VCs but the larger VCs that play at a national level.
4. Medical Alley’s “Healthcare & Technology Conference & Expo” in Minneapolis will be held on Nov. 17. Though this event will undoubtedly focus more on the medical device industry, it should also prove very interesting in terms of new breakthrough technology.
There’s no shortage of biotech activities in our region. See you next week!
Michael S. Rosen is president and CEO of Barbeau Pharma and a founder and board member of the Illinois Biotechnology Industry Organization (IBIO). He can be reached at This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of The Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.