U.S. Venture Investment Drops 7% to $7.37 Billion in 3Q08
October 18 2008 - 2:01AM
PR Newswire (US)
Dow Jones VentureSource Finds VC Focus Shifts to Existing Portfolio
Companies; Renewable Energy Attracts Record $1B; SF Bay Area See
Most Investment Since 2001 SAN FRANCISCO and NEW YORK, Oct. 18
/PRNewswire/ -- As the economy weakened during the third quarter,
venture capitalists continued to rein in investments in U.S.-based
companies, according to the Quarterly U.S. Venture Capital Report
from Dow Jones VentureSource
(http://www.venturecapital.dowjones.com/). The third quarter of
2008 saw $7.37 billion in venture capital invested into 583 deals,
7% less than the $7.94 billion put into 673 deals during the same
period last year and the second consecutive quarter of
year-over-year declines. "Clearly, the current economic crisis is
already impacting the venture industry, which has traditionally
been relatively insulated from fluctuations in the broader
economy," said Jessica Canning, Director of Global Research for Dow
Jones VentureSource. "With the IPO market likely to be shut down
for some time, venture capitalists are pulling back on investments
in technology companies as well as in areas like business and
financial services and media, content and information that are
likely to suffer from a decline in advertising and enterprise
spending. At the same time, VCs are allocating more resources to
energy deals, which stand to benefit from a shift in federal and
state energy policies." Renewable Energy Investment Breaks $1B Mark
for First Time Most notably, the data showed that investments in
the energy and utilities industry reached a record $1.18 billion in
32 deals during the third quarter of 2008, up 90% over the $620
million invested in 35 deals during the same quarter last year.
Specifically, 18 deals in the renewable energy category accounted
for a record $1.08 billion in investment with the majority of that
capital going to solar companies. "While there are a relatively
small number of deals being done for solar power and other
renewable energy companies compared to traditional VC areas like
software and IT, they're attracting huge amounts of capital and
that's to be expected," said Ms. Canning. One of the top venture
deals in the third quarter belonged to a solar company,
SolarReserve of Santa Monica, Calif., which raised $140 million in
its second round. IT, Web Companies Suffer; Health Care Flat The
data shows that the information technology (IT) industry saw deal
flow fall to its lowest point in more than a decade, dropping 21%
from 342 deals in the third quarter last year to 270 in the most
recent quarter. Likewise, IT investments dropped 21% from $3.44
billion to $2.73 billion year-over-year. Software accounted for the
bulk of investment with $1.15 billion invested in 125 deals, down
13% from the $1.32 billion put to work in 149 similar deals during
the same period last year. For the first time in nearly three
years, the information services sector saw a decline in interest
from venture capitalists with $501 million put into 64 deals, 11%
less than the $561 put into 83 similar deals during the third
quarter of 2007. Information services include many of today's "Web
2.0" companies, most of which rely on advertising as a source of
revenue. The Web-heavy consumer services industry also saw
investment pull back, declining 47% from $286 million to $151
million in the most recent quarter while deal count fell from 32 to
20. The travel and leisure sector (down 79% to $28 million)
accounted for most of the decline. After two consecutive down
quarters, the health care industry rebounded to post a virtually
flat quarter with investment down 2% to $2.16 billion in 152 deals
during the third quarter of this year. The biopharmaceuticals
sector saw investment tick up 4% from $1.13 billion in the third
quarter of 2007 to $1.17 billion with the deal count remaining
relatively unchanged at 70. Medical device companies posted their
third-consecutive down quarter as investment fell 17% from $876
million to $727 million in the most recent quarter while the deal
count held steady at 55. According to the report, the business and
financial services industry saw investment drop 26% from some $1
billion in the third quarter of 2007 to $740 million in the most
recent quart as the financial institutions and services sector took
a hit in the face of the economic crisis. The consumer goods
industry posted its best quarter on record with investment
skyrocket to $223 million --- up 233% from $67 million --- on the
back of larger cleantech-related deals in the vehicles and parts
sector. Focus Shifts to Older, Later-Stage Companies The quarterly
report also confirmed that many venture capitalists are choosing to
focus on established portfolio companies as second and later-stage
rounds dominated investment with $5.89 billion, or 82% of the
quarter's investment total, put to work in 368 rounds -- versus the
third quarter of 2007 when second and later-stage rounds accounted
for 77% of capital investment. Specifically, second rounds saw the
largest gain with 150 deals and $1.88 billion, the highest
investment total for these kinds of deals in two years. Conversely,
investments in seed and first rounds dipped to $1.30 billion
invested in 203 rounds, a two-year low in terms of investment. The
overall median size of a venture capital deal in the U.S.
---including all stages of development --- held steady with 2007 at
$7.5 million, still the highest total on record. Regional
Perspectives California dominated the venture capital activity in
the third quarter of 2008, representing 45% of the nation's deal
flow with 261 deals completed and nearly 56% of the capital
invested with $4.10 billion. By major region, the report showed: --
The San Francisco Bay Area saw a 22% jump in overall venture
investment with $3.17 billion invested in 195 deals with much of
the growth driven by record investments in health care and energy.
This marks the highest investment total for the region since the
first quarter of 2001. -- Despite seeing investment drop nearly 10%
to $867 million in 56 deals --- its lowest deal count since 2005
--- Southern California was the second most-popular region for
venture investment, once again beating out New England, which saw
investment fall 23% to $769 million in 78 deals. -- The New York
Metro region attracted $559 million in 49 completed deals, 14% less
than the $647 million invested in the third quarter last year. --
The Potomac region saw capital investment fall 27% to $264 million
with 21 deals closed in the quarter. -- Investment in the
Washington State dipped 10% to $210 million invested in 18 deals.
-- Texas recorded its second down quarter in a row as investment
fell 73% to $119 million in 16 deals -- Capital investment in the
Research Triangle region jumped 124% from $33 million last year to
$74 million with 10 deals closed in the most recent quarter. For
more information about Dow Jones VentureSource or to arrange a
personal demonstration, visit
http://www.venturecapital.dowjones.com/ or call 866-291-1800. The
investment figures included in this release are based on aggregate
findings of Dow Jones proprietary U.S. research and are contained
in VentureSource. This data was collected by surveying professional
venture capital firms, through in-depth interviews with company
CEOs and CFOs, and from secondary sources. These venture capital
statistics are for equity investments into early stage, innovative
companies and do not include companies receiving funding solely
from corporate, individual, and/or government investors. No
statement herein is to be construed as a recommendation to buy or
sell securities or to provide investment advice. Copyright (C) 2008
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