Venture capitalists invested $4.8 billion in 637 deals in the third quarter of 2009, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters . Quarterly investment activity increased 17 percent in terms of dollars, but fell 3 percent in number of deals compared to the second quarter of 2009 when $4.1 billion was invested in 657 deals. The increase in dollars invested was driven by several large rounds in the Clean Technology sector, one of which is the ninth largest deal since 1995. The Life Sciences sector (biotechnology and medical device industries combined) also had a solid quarter relative to other industry sectors, leaving Software as the third highest investment sector, a notable decline in industry ranking.
“The increase in venture capital investing this quarter is very encouraging,” noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers LLP. “With the signs pointing to an economic recovery, albeit a slow one, we’re likely to see the pace of investing continue to strengthen over the next several quarters as long as the IPO markets begin to open up and M&A activity increases.
And, as predicted last quarter, we expect to see annual investments for 2009 exceed the $15 billion mark given the continued strength we saw in investing this quarter.”
“The third quarter illustrates a gradual and deliberate industry shift towards a longer term venture capital investment strategy,” said Mark Heesen, president of the NVCA. “Venture capitalists are becoming increasingly focused on industry sectors which require multiple rounds of financing for an extended time horizon. Companies in areas such as Clean Technology and Life Sciences require significant capital and expertise often over a 10 – 12 year period, resulting in more follow on rounds, higher average investment levels, and a longer average time to a successful exit. This is not to suggest that the venture capital industry will abandon shorter term IT investment. Rather, the mix of investments
will become much more balanced.”
Clean Technology Industry Analysis
The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw an 89 percent increase in dollars over the second quarter to $898 million. The number of deals completed in the third quarter increased 16 percent to 57 deals compared with 49 deals in the second quarter. The increase in Clean Technology investments was
driven by several large rounds, including three of the top 10 deals.
Ten of the 17 MoneyTree sectors experienced dollar declines in the third quarter, including Semiconductors (14 percent decline to another 10-year low)
Stage of Development
Seed and Early stage investments continued to grow in the third quarter in terms of number of deals, with $1.6 billion going into 284 rounds. This represents an 11 percent increase in deal volume and a 4 percent decrease in dollars over the second quarter when $1.66 billion went into 255 deals. Seed/Early stage deals accounted for 45 percent of total deal volume in the third quarter, compared to the second quarter when it accounted for 39 percent of all deals. The average Seed deal in the third quarter was $5.9 million, down significantly from $9.6 million in the second quarter; however, the Q2 average Seed deal size was skewed due to a single large deal. The average Early stage deal was $5.5 million in Q3, down slightly from $5.6 million in the prior quarter. Expansion stage dollars increased 27 percent in the third quarter, with $1.6 billion going
into 185 deals. Overall, Expansion stage deals accounted for 29 percent of venture deals in the third quarter, roughly the same percentage as in the second quarter of 2009. The average Expansion stage deal was $8.7 million, up from $6.6 million in the second
quarter of 2009.
Investments in Later stage deals increased 35 percent in dollars but fell 20 percent in deals to $1.6 billion going into 168 rounds. Later stage deals accounted for 26 percent of total deal volume in Q3, compared to 32 percent in Q2 2009 when $1.2 billion went into 210 deals. The average Later stage deal in the third quarter was $9.6 million, which increased significantly from $5.7 million in the prior quarter.
First-Time Financings
First-time financing (companies receiving venture capital for the first time) dollars decreased 20 percent while the number of first-time deals remained flat with $633 million going into 155 deals. This represents the lowest dollar level of first-time deals in survey
history. First-time financings accounted for 13 percent of all dollars and 24 percent of all deals in the third quarter, compared to 19 percent of all dollars and 24 percent of all deals in the second quarter of 2009.
Companies in the Software, Biotechnology, and Industrial/Energy industries received the highest level of first-time dollars. The average first-time deal in the third quarter was $4.1 million compared to $5.1 million one quarter ago. Seed/Early stage companies received the bulk of first-time investments, garnering 66 percent of the dollars and 68 percent of the deals, but fell short of second quarter percentages when they accounted for
76 percent of the dollars and 73 percent of the deals
MoneyTree Report results are available online at www.pwcmoneytree.com and www.nvca.org.
