02 Nov Venture capital above $6B for third straight quarter
Washington, D.C. – There are signs the United States economy is cooling off just a bit, but a decline in venture investing in the third quarter is not one of them, according to venture investment trackers.
Venture capitalists invested $6.2 billion in 797 deals during the third quarter of 2006, which represents a decline in both categories, according to a MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Financial.
Wisconsin, while still ranking low nationally in terms of the number of deals and money, saw its ventural capital dollars nearly triple from its Q3 2005 total.
While the total dollars invested topped the $6 billion mark for the third consecutive quarter, the investment level decreased by eight percent from the second quarter of 2006, when $6.8 billion was invested in 907 deals.
Tracy Lefteroff, global managing partner of the venture capital practice of PricewaterhouseCoopers, put the lower numbers into historical perspective.
“Even though the overall dollars remained relatively flat, which is consistent with historical patterns of lower third quarter investing, we saw significant movement between industry sectors,” Lefteroff said in a release. “In particular, biotech leap-frogged over software in terms of dollars invested.”
Early strength
Another silver lining was that despite the decline in overall numbers, the quarter saw increasing vitality in seed and early-stage investments in several industries, and continued strength in first-time financings. Seed and early-stage dollars rose in the telecommunications, media and entertainment, and industrial/energy sectors. (According to the Midwest Health Care Venture Investment Report issued by BioEnterprise, Midwest healthcare start ups raised $564 million in investments in the first three quarters of 2006.)
In assessing the quarterly results, Mark Heesen, president of the National Venture Capital Association, did not seem troubled by the overall decline or surprised by the strength of early-stage funding.
Heesen said the figures reflected a relatively stable investment environment, and are indicative of the discipline being applied to investment decisions.
“We are at a point in the investment life cycle where many venture capitalists are deploying fresh funds that have been raised within the last 18 months or so,” Heesen said. “Thus far, VCs are finding themselves at the beginning of a fairly long runway, betting more on those seed and early-stage companies that they believe will have the most promise five to seven years from now.”
State of the states
In Wisconsin, there were six venture deals reported in the third quarter for a total of $28.9 million, which compares to three deals in the same quarter of 2005 for $9.7 million.
As always, California by far had the most deals, with 335 transactions for $2.8 billion during the third quarter, while Massachusetts was a distant second with 73 deals for $513.2 million. Other top venture capital states are Texas, with 49 deals for $533.8 million; New York, with 44 transactions worth $212.9 million; and Pennsylvania, with 27 deals for $207.3 million.
By sector, the life sciences, including biotechnology and medical devices combined, saw the most interest in the quarter, with $1.8 billion invested in 177 deals. After a strong second quarter, biotech dollars fell five percent to $1.14 billion, but still took the single industry lead from the software category
Software had $1.09 billion going into 186 deals, representing a 19 percent decline in dollars and a 24 percent drop in deals.
Meanwhile, medical imaging investments rose 12 percent to $639 million.
Other highlights from the third quarter are as follows:
• Internet-specific companies, those whose business model is fundamentally dependent in the web, captured $1.1 billion in 154 deals, a four-year high.
• Telecommunications experienced its strongest quarter since 2002, with $848 million invested in 72 businesses.
• The industrial-energy sector reached a six-year high with $576 million going into 45 companies.
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