24 Jan Venture capital dips for first time since '03; Wisconsin firms attract $75 million
Washington, D.C. – A number of entrepreneurs recently have commented on how difficult it is to raise venture capital in this economic climate, and a key report has confirmed that venture capitalists invested less in 2008.
VCs committed $28.3 billion in 3,808 deals in 2008, an eight percent drop in dollars invested and the first time since 2003 that a decline was reported in this key metric, according to the MoneyTree report issued by PricewaterhouseCoopers and the National Venture Capital Association.
The report, based on data from Thomson Reuters, not only said 2008 investments declined eight percent from the previous year, but also reported that deal volume was down four percent compared to 2007.
Wisconsin companies raised $75.24 million in venture funding, led by major commitments to Cellular Dynamics, a Madison-based stem cell products company that raised $18 million in October, and Cellectar, a Madison radiopharmaceutical company that raised $13 million.
In 2007, Wisconsin companies attracted $90 million in later-stage venture capital financing, up $17 million over 2006. The $90 million was deployed in 21 venture capital deals.
Spread the pain
Nationally, the report said the decline in investments was spread across industries and companies in various stages of development, but did not hit every industry. Clean energy, for example, experienced a 50 percent increase in dollars invested over 2008, and companies in the seed stage of development also fared better, a sign that venture capitalists are funding younger, more innovative companies.
Mark Heesen, president of the NVCA, said in a release that the venture capital industry is adjusting to the new economic realities. “Venture capitalists are being cautious with their dollars which, in this environment is the right strategy,” Heesen said.
Among industry sectors, the life sciences (biotechnology and medical devices) dropped 15 percent to $8 billion invested on 853 deals.
Software investing dropped to $1 billion in the fourth quarter of 2008 on 194 deals, which represented the lowest quarterly investment in the past 10 years. Meanwhile, venture investing in Internet-related companies was flat year-to-year as these businesses attracted $4.9 billion in 851 deals; fourth quarter figures, however, may offer negative portent for 2009 as Internet specific investment fell 26 percent in terms of dollars and 20 percent in the number of deals compared to the third quarter of 2008.
Better news was found in clean energy, a sign that even an economic recession has not quelled the nation’s interest in energy independence. The clean technology sector drew $4.1 billion in 277 deals, a 52 percent increase in dollars and a 16 percent increase in deal volume over 2007.
The industrial/energy sector also received the most dollars in first-time financings, as $1.2 billion was committed in 149 deals in this category.
Seed funding jumped 19 percent last year, as $1.5 billion was pumped into 440 young companies – the highest annual total for companies in this stage since 2000.
Early-stage deals remained relatively flat with $5.3 billion going into 1,013 deals, which compares to $5.5 billion in 1,036 deals in 2007.
Later stage deals saw the biggest decline, as $10.18 billion went to 1,177 deals, a drop of 13 and three percent, respectively. Expansion stage deals fared slightly better, dropping nine percent to $10.6 billion invested, and slumping six percent to 1,178 deals.