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Dow Jones VentureSource: Investment at 18-Month Low
(Wireless News Via Acquire Media NewsEdge)
In the second quarter of 2008, quarterly venture capital investment in
U.S. companies slipped below the $7 billion mark for the first time in
18 months.
According to the Quarterly U.S. Venture Capital Report released by Dow
Jones VentureSource, investment fell 12 percent in the second quarter
compared to the same period last year with $6.64 billion put into 602
deals, the lowest quarterly deal count since 2005. The $7.58 billion
invested in second quarter of 2007 was the second-highest quarterly
totals recorded since the end of the dot-com boom in 2001.
"While the U.S. investment total is down compared to last year's
impressive second quarter, we still saw steady deal activity and
investment in the first half of the year, which is encouraging," said
Jessica Canning, Director of Global Research for Dow Jones
VentureSource. "Venture capitalists commonly take the long-view when it
comes to investing. While IPOs and acquisitions may be rare now, VCs
aren't concerned about that. They're focusing on what's next -- and
that's reflected in the healthy early stage investment we're seeing in
areas like renewable energy, information services and business support
services."
According to the report, the information technology (IT) industry saw
deal flow drop 27 percent from 390 deals in the second quarter last
year to 286 in the most recent quarter -- the lowest deal count since
the first quarter of 1997. Similarly, investments were down 26 percent
from nearly $3.50 billion to $2.60 billion, the lowest quarterly
investment total since 2003. The information services sector, which
includes the majority of today's "Web 2.0" companies, was the only area
within IT to see positive gains with $688 million invested in 80 deals,
a 20 percent increase over the $572 million invested in 94 deals during
the same period last year.
Health care companies also fared poorly in the second quarter with the
industry only seeing 149 deals completed and $1.98 billion invested.
That is 22 percent less than the $2.53 billion that was invested in 181
health care deals in the second quarter of 2007.
"The health care industry is the most concerning at the moment, as
investment is down 31 percent compared to the first six months of last
year and deal flow is at its lowest level in three years," said
Canning. "Considering the amount of time and capital it takes VCs to
build a successful life science company, there may be a hesitation to
continue investing in these companies given our current IPO market
conditions."
The data showed that the majority of the health care industry's
investment decline in the second quarter was contained in the medical
devices sector, which saw just 60 deals completed and $798 million
invested, a 25 percent drop-off from the $1.06 billion invested in 72
deals during the same time last year.
One bright spot highlighted by the data was the energy and utilities
industry, according to the report, which posted a record quarter with
$817 million invested in 32 deals, up 160 percent over the $314 million
put into 23 deals in the second quarter of 2007. Most notably, there
was a big surge in renewable energy investments as the sector saw $650
million put into 26 deals, records on both accounts.
"The movement of venture dollars from the traditional areas of
information technology and health care toward burgeoning sectors like
renewable energy, power management, and agriculture -- or 'clean
technology' areas -- proves that venture capitalists are making good on
their promise to tap opportunities in the massive energy market," said
Canning.
According to the report, the top three venture capital deals in the
second quarter all belonged to solar energy companies. Taking the top
spot was SunEdison of Beltsville, Maryland, which raised $131 million
(as well as an additional $30 million in separate debt financing) in
its second round. eSolar of Pasadena, Calif., garnered $130 million and
BrightSource Energy of Oakland raised $115 million.
Compared to the second quarter of 2007, the smaller business and
financial services (up 6 percent to $771 million) and industrial goods
and materials industries (up 14 percent to $150 million) both posted
modest gains while the consumer goods industry saw investment drop 24
percent to $121 million.
The quarterly report also confirmed that later-stage deals continue to
attract the lion's share of venture capital with $3.48 billion, or
roughly 54 percent of the quarter's investment total, put into 225
rounds. This pushed the median deal size of a later-stage round to a
record $12 million in the first six months of 2008.
Early stage deal-making did not take a back seat, however. In fact, the
number of first rounds actually ticked up from 200 rounds completed in
the first quarter of the year to 207 in the most recent quarter while
the later-stage deal count saw a corresponding dip.
"The most encouraging part of this quarter's report is that early stage
investing is holding relatively steady thus far in 2008," added
Canning. "It may be harder for entrepreneurial companies to raise
venture capital these days but it's by no means impossible. Continued
early stage deal flow is a good sign that the venture industry is
prepared to weather the economic downturn and will continue to back the
next wave of disruptive technologies."
According to the data, the median deal size of a first round was $5
million in the first half of 2008, an annual figure that has remained
unchanged since 2004.
The overall median size of a venture capital deal in the U.S. --
including all stages of development -- climbed to $7.5 million in the
first half of 2008, the highest total on record.
Regional Perspectives
California once again dominated the venture capital activity in the
second quarter, representing 45 percent of the nation's deal flow with
273 deals completed and nearly 51 percent of the capital invested with
$3.36 billion. By major region, the report showed:
-- The San Francisco Bay Area saw a 9 percent decline in overall
venture investment with $2.17 billion invested in 193 deals as IT
investment was off nearly 21 percent.
-- Despite seeing investment slip 2 percent to $868 million in 67
deals, Southern California remained the second most popular region for
venture investment, beating out New England, which saw investment drop
nearly 23 percent to $714 million in 76 deals.
-- The New York Metro region attracted $350 million in 42 completed
deals, 16 percent less than the $415 million invested in the second
quarter last year.
-- The Potomac region was one of the two major regions to see a capital
increase as investment ticked up 11 percent to $268 million in 19 deals.
-- Investment in the Washington State climbed 4 percent to $275 million
invested in 25 deals.
-- Capital investment in the Research Triangle region dropped 4 percent
to $118 million with 10 deals closed in the quarter.
-- Texas saw investment drop 65 percent to a paltry $90 million
invested in 13 deals, the region's lowest quarterly investment total in
at least six years.
((Comments on this story may be sent to newsdesk@closeupmedia.com))
((Distributed on behalf of 10Meters via M2 Communications Ltd -
http://www.m2.com))
((10Meters - http://www.10meters.com))
Copyright ? 2008 Wireless News
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