Moneytree Sees Some Positives in 2nd Quarter VC Investments

The U.S. venture capital industry showed signs of growth during the second quarter of 2009, according to the most recent update from the National Venture Capital Association and PricewaterhouseCoopers Moneytree Report. While the total number of deals remained flat, total dollars invested increased by 15 percent over the first quarter of the year. Much of the growth is the result of increased investment in seed and early-stage companies, which grew 67 percent over the previous quarter in an encouraging sign for entrepreneurs. Life science (including the biotechnology and medical device industries) investment also received a boost, receiving the highest percentage of U.S. venture capital dollars the sector has received in the history of the report.

Despite those encouraging signs, however, investment remains well below levels reached one year ago. Investment during the most recent quarter amounted to less than one-half of the dollars invested and 58 percent of the deals during the same quarter last year. The NVCA/PricewaterhouseCoopers announcement notes that, at the current rate of recovery, national investment totals for the year likely will resemble totals from 1996 and 1997. The lack of corresponding increases in venture fundraising and exit activity indicates that the current bump may not represent the start of a period of consistent growth, according to the release.

Silicon Valley, which received about 39 percent of U.S. venture dollars last year and 31 percent of all deals, did not benefit from the national bounce. Investment in the region fell by 8 percent in total dollars and by 6 percent in deals from the first quarter. Silicon Valley investment represented only 32 percent of national dollar investment in the second quarter. The Philadelphia metropolitan area posted the most impressive gains in the Moneytree regional data, doubling its number of deals and quadrupling its total dollars. Investment in the region, however, still lags behind last year's activity. Other regions experiencing strong growth include the Southwest (Arizona, Nevada, New Mexico and Utah), Colorado, the Southeast (Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina and Tennessee) and San Diego.

Though the life science sector overtook software as the leading target for investment, much of that increase was due to larger investments. Four of the top ten deals in the quarter were in the life sciences. The biotechnology industry alone dwarfed software investment on the strength of a few deals, though medical devices did experience a 32 percent increase in deal volume. Software investment saw only modest gains, as did networking and equipment, computers and peripherals and IT services. The clean tech sector, the internet-specific sector, semiconductors, media and entertainment and telecommunications all declined.

The bump in earlier-stage investment represents a renewed interest in young companies by investors. In the second quarter, seed- and early-stage investments represented 41 percent of venture dollars, the highest percentage since the late 1990s. This increase, however, was driven by several large deals as well, including the largest deal of the quarter. The number of seed- and early-stage deals remained flat. That earlier-stage and overall deal levels remained flat indicates that the uptick in venture activity is being driven by larger deals, and may signal that more time will be needed before any claims can be made that the industry is recovering.

Read the NVCA announcement at: http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=471&ItemId=93