VC Picks Up in Q4 2003

Venture capital (VC) investments in the U.S. continued to surge in the fourth quarter of 2003, two independent reports show. Among highlights, investment in life sciences companies outpaced other industry sectors. The sector's $4.89 billion total for the full year 2003 is the highest proportion directed to the life sciences in the last 12 years, according to the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey.

As a convenience to Digest subscribers, SSTI has compiled a state-by-state listing of the MoneyTree™ Survey results for all of 2003. Data is presented for each state's number of deals, total amount invested and ranking, as reported in past editions of the Digest. The table is available at: <http://www.ssti.org/Digest/Tables/021304t.htm> [Note: The table includes the latest data available for Q4 2003, but not for previous quarters. Only those states securing investment are listed. Because the data are continuously updated, Q4 2003 figures also differ from the data currently available at pwcmoneytree.com. Thanks to Joshua Radler of Thomas Venture Economics for his help in preparing the table.]

With VC activity in the U.S. ending on an increasing trend during Q4 2003, venture capital dealings in Europe also picked up, increasing 7 percent over the prior quarter. Overall, euro 855 million were invested in 249 financings in the fourth quarter, based on a VentureOne/Ernst & Young European Venture Capital Report. Activity in venture-backed healthcare companies experienced a 21 percent increase in deal flow, with euro 321 million invested. Biopharmaceuticals alone garnered euro 257 million in investment via 46 deals.

MoneyTree™ Survey

Venture capital ended the year on an up note in Q4 2003 with investments totaling $5.1 billion in 698 companies, MoneyTree™ Survey data show. This figure is up from $4.4 billion in Q3 2003 and is the highest amount invested since the second quarter of 2002, when the total reached $6 billion.

For all of 2003, investments totaled $18.2 billion in 2,715 companies. The 15 percent decline from 2002’s $21.4 billion is small compared to decreases over the last three years, a trend that indicates VC is settling at a sustainable level, according to the MoneyTree™ Survey. The relatively consistent levels of quarterly investing throughout 2003 further support this assessment.

Biotech saw its momentum continue in Q4 2003 with $1.1 billion of investment. For the second consecutive quarter and only the second time in the past eight years, biotech led all other industry categories. Software, which accounted for $978 million in the quarter, was second.

The life sciences sector, which includes biotech and medical devices, attracted $4.89 billion in 2003, or 27 percent of all dollars invested. This represented the highest proportion directed to the life sciences in the last 12 years. The largest single-industry category was software, capturing $3.6 billion over the full year. That figure amounted to 20 percent of all investing, which is in line with historical norms for the category.

Biotech followed closely behind software for the full year, closing with $3.4 billion in venture deals, the survey data reveal. The other two major industry categories both slipped slightly in 2003. Telecommunications fell to $2 billion, or 11 percent of all investing, and networking dropped to $1.7 billion or 9 percent of the 2003 total.

Detailed information for the fourth 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.

Growthink Research

The Growthink Private Equity Funding Reports, which profile only private, U.S.-based companies that receive equity investments of $300,000 or more, found more than $5.5 billion of venture capital was invested in 502 private companies in Q4 2003. This represents the first quarter-to-quarter increase in funding in two years and the largest increase since early 2000.

Funding for the healthcare sector surpassed $2 billion with 138 total ventures, Growthink reports. Of the healthcare total, 73 biotech and pharmaceutical companies secured $1.1 billion in venture capital deals. More than 30 percent of the total dollars invested still went to 147 companies in the connectivity sector, however. Overall, more than $5.5 billion of venture capital was invested in 502 private companies in Q4 2003.

Among major metropolitan areas, the San Francisco Bay Area continued to lead the nation with $1.5 billion in investments, or 27.4 percent of the nation's total, and 139 companies securing deals. Boston was next with $663 million (11.9 percent) and 61 deals. New York City remained in the third position with $596 million (10.7 percent).

Washington, D.C., Chicago, San Diego, Austin, Orange County (Calif.), Los Angeles and Atlanta rounded out the top 10 metro areas, which accounted for 74.1 percent of the nation's total fourth quarter VC activity. Philadelphia, Denver/Boulder and Minneapolis/St. Paul fell from the top 10.

Growthink figures also differ from the Moneytree™ Survey in that Growthink does not collect information on venture capital investments in public companies, debt financing or other areas. The fourth quarter survey, with data arranged by geographic region, state, metro area and industrial sector, is available in individual sections or in its entirety at: http://www.growthinkresearch.com