VC Investments Stabilize in Q2 2003?

The unsettled nature of the venture capital industry is well depicted in two differing reports released Tuesday. Both detail venture capital investments for the second quarter of 2003, but offer a conflicting picture of U.S. investing activity.

Data found in the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey suggest two straight years of quarter-to-quarter declines in venture capital investing ended with Q2 03. The newest data from Growthink, however, reveals the downward trend continued from the preceding quarters, showing a 1.2 percent decline over the first quarter of 2003.

MoneyTree Survey™

Investments totaled $4.3 billion, up marginally from $4 billion in Q1 03, according to the MoneyTree™ Survey. A total of 669 entrepreneurial companies received funding in the second quarter compared to 647 companies in the previous quarter. Further, investments in companies in the early-stage of development increased significantly to $956 million, up from $668 million in the prior quarter — the first such increase in three years.

The increase in Q2 03 is said to be the first in the post-bubble era that began in early 2001. The rate of decline slowed dramatically over the prior nine months, pointing toward a leveling of overall investing activity, according to the MoneyTree™ Survey.

Reflecting a return to core investing, nearly all of the leading industry categories experienced increases over the prior quarter. Software attracted $864 million invested in 179 companies, up 7 percent. Biotech was second with $639 million going to 66 companies, a 14 percent increase. After a significant drop in the first quarter, Medical Devices rebounded to typical levels with 52 companies capturing $437 million, up 54 percent from the prior quarter and the largest increase of any major industry segment. The Life Sciences sector, combining Biotech and Medical Devices, totaled $1.1 billion.

The Telecommunications industry held the number three spot on the strength of later-stage investing with $615 million going to 70 companies, an increase of 21 percent over the first quarter. Semiconductor investing was essentially flat at $268 million. Networking continued to slide, falling 7 percent to $427 million. Changes in the other industry categories were mixed with increases in some offsetting decreases in others.

Detailed information for the second quarter of 2003 is available by region, industry and stage of finance at http://www.pwcmoneytree.com. Historical data dating back to 1995 also are available for the U.S. and selected regions.

Additionally, SSTI has prepared a state-by-state table <http://www.ssti.org/Digest/Tables/080103t.htm> to present the MoneyTree™ Survey results for Q2 03. The table includes data for the number of deals, total amount invested, average deal size and ranking.

Growthink Research

Companies securing investments in Q2 03 numbered 17 fewer than the prior quarter, as nearly $4.25 billion of venture capital was invested in 469 private companies, according to Growthink Private Equity Funding Reports. The $4.3 billion-plus in venture capital that went to 486 private companies in Q1 03 reflects a 1.2 percent decline, Growthink research shows.

Among major metropolitan areas, the San Francisco Bay Area continued to lead the nation with $1.27 billion in investments, or 29.9 percent of the nation's total, and 134 companies securing deals. Boston was next with $452.4 million (10.6 percent) and 57 deals, and San Diego climbed from seventh to third with $208.4 million and 23 deals (4.9 percent). New York City remained fourth, with 28 companies raising $198.7 million.

The Denver/Boulder, Seattle, Washington D.C., Philadelphia, Los Angeles and Irvine/Santa Ana metro areas rounded out the top 10, which accounted for 72.9 percent of the nation's total second quarter VC activity. Austin, Chicago and Dallas fell from the top 10.

Growthink reports only private, U.S.-based companies that receive equity investments of $300,000 or more. The company does not collect information on venture capital investments in public companies, debt financing or other areas. The fourth quarter survey, including data by geographic region, state, metro area and industrial sector, is available in individual sections or in its entirety at: http://www.growthinkresearch.com