Midwest VC investment up in 2004, but number of deals down

Midwest VC investment up in 2004, but number of deals down

Last week, we looked at venture capital performance in the U.S. during 2004.
We also took a look at how well the Midwest garnered its share of this investment as well as how the life science industry performed. Though I had hoped to give you a more detailed look at how the life science industry in the Midwest performed, that data is not yet out from the PricewaterhouseCoopers MoneyTree report.
Still, I was able to ferret out some additional data on venture capital investments in the U.S. last year (particularly for the life science industry). Let’s take a look:

The life science industry did very well in new VC investments in 2004 with the medical device sector outperforming the biotech sector. Let’s look at this activity in terms of number of deals completed and amount of money per deal:

The number of deals for both sectors was up for 2004. The amount of money per deal was also up.
Medical devices once again outpaced the biotech sector in terms of growth of deals (though the biotech sector continues to be the leader in absolute number of deals). On average, biotech deals still are 60 percent larger than medical device deals. This is due to the longer and more expensive regulatory process for drugs versus devices.
Last week, we looked at an amalgamated version of the Midwest (which unfortunately included some unrelated states such as Kentucky and western Pennsylvania). This week, I have actually been able to assemble data from the eight Midwest states with data from each state. Let’s take a look at these results:

Minnesota led the way for 2004 with about 33 percent of all Midwest VC investment.
Add in Illinois and the two states have about 60 percent of total Midwest VC investment. Illinois VC investment fell heavily from 2003 (as did Ohio and Missouri). Michigan investment is on the rise perhaps due to the state’s creation of VC funding from its tobacco money windfall.
Another key point for the Midwest is the number of deals completed and the average size of each deal. The next chart should show us this trend:

Once again, Minnesota led the way in numbers of deals. Minnesota was followed closely by Illinois. Deal size in Minnesota was 27 percent higher than Illinois. The average Illinois deal size dropped significantly from 2003. The number of Midwest VC deals dropped during 2004 with declines in three Midwest states. Still, the average deal size grew substantially in 2004.
Overall, the amount of VC investment in the Midwest grew by 9 percent in 2004, which was a good sign. The number of deals, though, declined by 17 percent.
Though there’s no information yet on life science deals in the Midwest, I would suspect that the Midwest will have substantially less than the 26 percent of total VC investment, which was true for the life science industry on a nationwide basis in 2004. See you next week!

Michael S. Rosen is the chairman and CEO of Immune Cell Therapy, a new start-up out of the University of Illinois at Chicago developing cancer vaccines. Rosen is also a founder and board member at the Illinois Biotechnology Industry Organization (IBIO). He can be reached at rosenmichaels@aol.com.

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