Posted by: hmchang | June 14, 2008

Study on U.S. Venture Investment from 2007Q1-2008Q1

1.    Overview

In 2007, venture capitalists invested $30.514 billion in total – a highest level of total investment amount since 2002. The venture capitalists invested in a total of 3914 deals, making the average amount of investment per deal $7.8 million. These two numbers are also at historical high since 2002.

From 2007Q1 to 2008Q1, the largest quarterly venture capital investment was at 2007Q3, accumulated a $7.846 billion total capital investments based on 980 deals. The greatest total number of deals is 2007Q4’s 1045, while the greatest average amount invested per deal is 2007Q1’s $8.714 billion. Compared to 2007Q4, the 2008Q1 reported a 8.5 percent decline in investment amount, but it is still the fifth highest quarter since 2001 [4].

In 2007, software companies takes up 17.83% of the total investments, making them the largest industry segment for investment (Exhibit 7). The biotechnology (17.05%), medical devices and equipments (13.53%), industry/energy (10.26%), telecommunications (6.91%) companies took up the second to the fifth places of the total investment (Exhibit 7). These industry segments remain among top venture capital investment lists from 2007Q1 to 2008Q1, showing a strong interest of venture capitalists in these industries in recent deals.

According to Mark Heesen, president of the National Venture Capital Association (NVCA), the increase in investment from 2002 to 2007 is a rational trend owing to more capital intensive investments as compared to the past [3]. The total number of deals shows only a single digit of increase throughout the years, indicating a prudent process in investment decisions [3].

Furthermore, Mark Heesen did not see any significant declines in investments levels in year 2008 despite of the economic downturn [4]. As he pointed out, the venture capital industry tends to embrace a long term horizon mindset so that they will continue to have interest to invest in life sciences and clean technology industries [4]. However, if the IPO market remains gloomy throughout the year, venture capitalists may need to sustain their portfolio companies longer than expected [4].

2.    Industry Analysis

The life sciences sector (combining the biotechnology and the medical device industries together) has $9.3 billion venture capital investments that went into 862 deals in year 2007, which is approximately 19.7% increase in capital compared to $7.6 billion that went into 786 deals in 2006. The medical device industry itself has $4.1 billion investments in year 2007, which is around 43% increase as compared to year 2006. On the other hand, the biotechnology segment grows about 10% from 4.7 billion in year 2006 to 5.2 billion in year 2007. Both segments remain strong in 2008Q1: the biotechnology segment takes 17.73% and the medical device segment takes 14.27% of the overall investments.

The software sector remains relatively stable throughout 2007Q1 to 2008Q1. It has been on the top 1 or 2 single segment in the last five quarters. In 2008Q1, there is $1.264 billion capital investment on 234 deals, which is approximately 17.7% of the total investments in the quarter.

The energy segment, comprises of alternative energy, pollution and recycling, power supplies and conservation has a peak at 2007Q3, having approximately $1.14 billion of investments. This was 14.56% of the total investments in 2007Q3. In other quarters, the energy segment remains quite strong with an investment of around $6 billon each quarter, about 8% of the total investments.

Internet-specific companies are always above 12% of the total investments in the past five quarters – in 2007Q4 and 2008Q1 even above 18% . The internet-specific companies are companies whose main business model is fundamentally depending on the Internet regardless of their primary industry. This is a classification independent of the other industry sectors.

3.    Stage of Development

Investments into expansion and later stages combined to have approximately 80% of the total investments. Investments on the later stages has dropped two consecutive quarters in 2007Q4 and 2008Q1, marking a 36.71% of the total investments, compared to 42% at 2007Q3. Investments into the expansion stage remain quite stable at approximately $3 billion per quarter, making 35~40% of the total investments. Expansion and later stage investments also top the number of deals, with approximately 300 deals each every quarter.

Investments into the early stage remain stable, account for 15~20% of the total investments. The total number of deals fluctuates between 200 and 300 in the past five quarters.

The startup/seed stage investment is the least amount of all stages, usually around 5% or less of the total investments in each quarter, and the number of deal is less than 120. In 2008Q1, $368 millions go into 103 seed stage investment deals.

References

[1] The Money Tree Report
https://www.pwcmoneytree.com/MTPublic/ns/index.jsp
The Money tree report is provided by the Pricewaterhouse Coopers and the National Venture Capital Association based on data by Thomson Financial.
[2] The Money Tree Report Historial Data Spreadsheet download:
https://www.pwcmoneytree.com/MTPublic/ns/moneytree/filesource/exhibits/NatlAggSpreadsheetQ1_2008_Final.xls
[3] Venture Capital Investments Q1 08 – MoneyTree Report by the National Venture Capital Association, available online:
http://www.nvca.org/pdf/07Q4MTRelEmbargoFINAL.pdf
[4] Venture Capital Investments Q1 08 – MoneyTree Report by the National Venture Capital Association, available online:
http://www.nvca.org/pdf/08Q1MTPressReleasewiresFINAL.pdf

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