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Venture Funding Remains Strong in Third Quarter Despite Ominous Signs
Venture capitalists invested $7.1 billion in companies during the third quarter of 2008, according to the latest Moneytree survey from PricewaterhouseCoopers and the National Venture Capital Association (NVCA). Though this figure represents a nine percent decline from the same period last year, investment levels still show little evidence of the current drought in venture-backed exits. Many expect investment to decline in the fourth quarter and next year, particularly for seed and early stage companies, as investors become more cautious and begin shifting their focus to the later-stage companies in their portfolio.
For the time being, seed and early stage investment is up slightly over the previous quarter and the same period last year. These deals now represent 39 percent of total deal volume, up 2 percentage points from Q2 2008. The number of expansion stage deals, on the other hand, fell from 321 in the previous quarter to 263. Expansion deals now account for only 29 percent of deals, the lowest level since the Moneytree survey began in 1995. Later-stage deals have been holding steady at about 32 percent of overall venture investments.
Biotechnology has taken the lead over software as the leading industry for investment, though software still leads in number of deals. Investment in biotech jumped significantly in the third quarter, up almost 21 percent over Q3 2007. Clean technology investment also got a bump, and grew 14 percent over last quarter. Most industries however were down, with the biggest declines in financial services, business products and services and telecommunications.
SSTI has prepared a table with investment levels and number of deals by state during the third quarter using the Moneytree data. Few states are seeing more venture activity than this same period last year and a few states, including Texas and Florida, have experienced fairly serious declines. Michigan was one of only a handful of states to receive an influx of activity. The state had $89 million invested in 11 deals in the third quarter, up from $7 million in 3Q 2007 and $66 million in 2Q 2008. Access the full table of state-by-state data at: http://www.ssti.org/vc/3q.htm.
The NVCA previously reported that fundraising has finally begun to slow, despite the continued relative strength of investments (see the October 20, 2008 issue of the Digest). Mark Heesen, president of the NVCA, noted that if the exit drought continues into 2009, investment will likely begin to decline for companies seeking capital for the first time.
Read the Q3 2008 PricewaterhouseCoopers/National Venture Capital Association Moneytree Report at: https://www.pwcmoneytree.com/MTPublic/ns/moneytree/filesource/exhibits/Q3%202008%20MoneyTree%20Report_final.pdf
Annual data on state and national venture capital investment is available on the SSTI Venture Capital Dashboard. The state profile pages offer information on per capita investment and investment by stage of business development. This data is provided by PricewaterhouseCoopers and NVCA. Visit the SSTI Venture Capital Dashboard at http://www.ssti.org/vc.