U.S. Venture Capital 2008: Strong Midwest growth albeit overall decline

U.S. Venture Capital 2008: Strong Midwest growth albeit overall decline

When last we met, we took a look down the road of U.S. venture capital during 2008. I promised a further look at what happened in key states around the U.S. and the Midwest. Of the $28.3 billion raised in venture capital last year, California, once again, and almost embarrassingly so, garnered the lion’s share of money: $14.4 billion!
According to PriceWaterhouseCoopers’ MoneyTree Report for 2008, California is broken down into a couple of regions:
U.S. Venture Capital Investments 2008: California by Region

Region 2008 Venture Capital Investment
($ B)
%
Growth
Number of Deals Amount of Investment/ Deal ($ M)
1. Silicon Valley $11.0 0% 1,170 $9.4
2. L.A./ Orange County $2.0 +25% 237 $8.4
3. San Diego $1.3 <35%> 126 $10.3
4. Sacramento $.1 <28%> 19 $3,8
TOTAL California $14.4 <2%> 1,552 $9.3
% of Total U.S. 51 % 41%

Source: www.pwcmoneytree.com
California is almost a nation unto itself when it comes to venture capital with 51 % of all monies invested and 41% of all deals during 2008 in 4 regions.
Other leading regions were:
U.S. Venture Capital Investment 2008 – By Leading Regions

Region 2008 Venture Capital Investment $B) %
Growth
% of Total U.S. Number of Deals Amount of Investment/ Deal ($M)
New England $3.3 <15%> 12% 460 $7.2
New York $2.0 +11% 7% 337 $5.9
Midwest $1.3 +8% 5% 267 $4.9
Texas $1.3 <13%> 5% 146 $8.9
Southeast $1.2 <40%> 4% 207 $5.8
Northwest $1.2 <29%> 4% 208 $5.8
DC/Metroplex $1.0 <23%> 4% 190 $5.3
Colorado $0.8 +33% 3% 100 $8.0
Philadelphia Metro $0.7 <12%> 2% 140 $5.0
Sub-Total 9 Regions $12.8 0% 46% 2,055 $6.2

Source: www.pwcmoneytree.com
What is surprising, is the next 9 leading regions in the U.S., together, have less VC investment than California, although more deals (at a smaller deal size). The results for these regions were all over the place with some showing substantial growth and others sharp declines. The Midwest was one on the better growth areas with 8% more investment than the prior year. Note that PriceWaterhouse Cooper’s definition of the Midwest is a different than the standard 8 states; it includes Illinois, Missouri, Indiana, Ohio, and Michigan, but also puts in Western Pennsylvania and Kentucky. Minnesota, Iowa and Wisconsin figure in the “North Central” region.
Let’s take a closer look at the “real” Midwest results:
U.S. Venture Capital Investments 2008 – Midwest Region

State VC Investment 2008 ($ M) % Growth Number of Deals Average Deal Size ($M)
Minnesota $490.8 +1% 47 $10.4
Illinois $444.3 <12%> 67 $6.6
Ohio $247.8 +29% 52 $4.8
Michigan $245.7 135% 43 $5.7
Indiana $123.6 +49% 16 $7.7
Missouri $86.5 <6%> 24 $3.6
Wisconsin $75.2 <17%> 19 $4.0
Iowa $40.2 +538% 5 $8.0
Total Midwest* $1,754.1 +12% 273 $6.4

Source: www.pwcmoneytree.com
* Midwest number differs from above due to PWC classification of Midwest; above table includes traditional definition of the Midwest.
Surprisingly, the Midwest was strong with good VC investment growth in many states. Illinois, Wisconsin, Missouri VC investments declined with the other 5 states showing generally very robust growth.
As we are now in nearing the latter part of February with only one month to go in the first quarter of 2009, I am willing to bet that VC investments will be down for the quarter versus both last year and the prior quarter, although there has been more activity than anticipated. Good deals are getting done!
Although the Initial Public Offering (IPO) market has been termed “dead”, one life science IPO that did take place and which has been a rousing success, is Mead Johnson, formerly the nutritional division of Bristol-Myers Squibb. Mead Johnson, historically, had been headquartered in Evansville, Indiana, but had been rumored to be looking for a new HQ in Chicagoland, while retaining R&D and manufacturing in Evansville.
According to a WSJ article on Feb.11, Mead Johnson sold 30 million shares at $24/share for a total of $720 million. Note that Bristol-Myers still retains an 85% ownership position in Mead Johnson. Mead Johnson had 2007 sales of some $2.6 billion, so this is not a biotech play. As of today, the stock is trading at $27.70/share or up some 15% from the IPO price. It appears most of the cash from the IPO went back to Bristol-Myers to pay-off some of the inter-company debt.
As 2009 is not a year of “business as usual”, I am sure we will see a lot of creative deals happening, particularly in the M&A arena.
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.