Cleantech, Life Sciences, and Web Plays Lead the Way as Venture Investments Hit Six-Year High; New England VCs Step Up the Pace

1/22/08Follow @bbuderi

That skidding sound you heard all through the fourth quarter of 2007 might have been the U.S. economy, but the screech of brakes apparently didn’t reach the ears of venture capitalists. Venture investments in U.S. companies stayed strong through the fourth quarter, capping off a solid year, according to the latest data from Dow Jones VentureSource and the MoneyTree report from the National Venture Capital Association, Thomson Financial, and PricewaterhouseCoopers. Although their different methodologies resulted in different tallies, both the VentureSource ($29.9 billion) and MoneyTree ($29.4 billion) reports, officially released today and yesterday, respectively, put 2007 venture investments at just under $30 billion—the highest annual total since bubblicious 2001.

Cleantech saw the biggest percentage-wise growth in venture investments, while life sciences companies and Web-based firms attracted higher dollar totals, the reports noted. Regionally, New England venture investments trailed only the San Francisco Bay Area in the MoneyTree data (although it was edged out for second place by Southern California in the VentureSource report). Meanwhile, adds VentureSource, the Boston area’s 19 percent growth in capital outlays over 2006 topped both San Francisco and SoCal.

What’s Hot and What’s Not

The biggest-gaining sector winner of the year in percentage terms was cleantech/energy, which got a turbo blast of investments that totaled $2.5 billion, a 67 percent hike over 2006, according to VentureSource. (The MoneyTree figure was $2.2 billion, which it says represents a 47 percent rise.)

Also doing well was healthcare, which set a new annual record with almost $10 billion—up 17 percent over last year—funneled into 671 deals, reports VentureSource. The median deal size in the sector hit another record, of $10 million. Within healthcare, other records were set in biopharmaceuticals and medical devices, which saw $5.4 billion (327 deals) and $3.7 billion (252 deals) invested, respectively, according to VentureSource These trends were mirrored in the MoneyTree report, which reported $5.2 billion invested in biotechnology and $3.9 billion in what it calls medical devices and equipment. MoneyTree reports that the combined sector (life sciences in its labeling) received 31 percent of all VC dollars invested, the most of any field.

By contrast, information technology managed only a 2 percent rise in the amount invested over 2006, with a total of $14.8 billion for the year, says VentureSource. With its total of 1,530 financing deals, 2007 eked out a 7-deal victory over the previous year as well. (Word is, 2006 is demanding a recount). The bright spot in IT was Web deals, which soared 44 percent, to $3.7 billion (although the $60 million follow-on investment in Facebook skewed the numbers).

It wasn’t all good times, however. The business-consumer-retail sector fell nearly 20 percent from 2006, as it managed to attract just $2.6 billion, compared to $3.2 billion a year earlier, according to VentureSource. The MoneyTree report also noted a significant falloff in telecom investments, from $2.6 billion in 2006 to $2.1 billion last year, a roughly 20 percent decline. Other falloffs came in healthcare services, semiconductors, and electronics/instrumentation, MoneyTree said.

Where’s Hot and Where’s Not

No surprise, California remained at the top of the list for venture investments, accounting for some 42 percent of all deals (1,112) and nearly half (47 percent) of the funds invested (nearly $14 billion), says VentureSource.

The San Francisco Bay Area led the way, as firms poured $9.9 billion into 818 deals, a modest 3 percent rise over 2006, according to VentureSource. Southern California, apparently combining the LA and San Diego areas, came in second, with $3.8 billion in 272 deals, a 12 percent improvement over the previous year. That edged out the Boston region’s total of $3.7 billion, which surged 19 percent against a year earlier. That gain was the most of any area highlighted in the report data except Washington State, where the $1.4 billion of capital invested marked a 27 percent rise over 2006. The MoneyTree data, shown in the list below, put New England second in regional investments, also with $3.7 billion, but slightly ahead of the $3.6 billion you get if you add San Diego and LA/Orange County, which MoneyTree counts separately.

Regional losers, according to the VentureSource study, included New York metro, the Potomac region, and Texas. The Empire State, which we previously noted beat out the Boston/New England area in second quarter venture investments, evoking Yankee-Red Sox angst, ended the year on a down note (also like the Yankees). All told, capital investment in New York fell 9 percent to $2.1 billion. Investments in Texas firms slipped 7 percent to $1.1 billion, while Potomac companies brought in $982 million, a 15 percent nosedive from 2006.

Other stats we found interesting, in no particular order:

— First-time financings achieved a six-year high, with 1,267 companies getting their first taste of venture funds, says MoneyTree. That’s up 8 percent from 2006.

— Seed and early-stage investments (975 deals) accounted for 38 percent of total deals, the largest area of activity by stage. Not surprisingly, though, later-stage investments led the way in terms of dollars invested ($14.3 billion), accounting for roughly half the total funds. All this from VentureSource.

— The median round size last year was $7.6 million, compared to $7 million in 2006, notes VentureSource.

— U.S.-based venture firms put $1.4 billion into 133 Chinese deals, and $1.1 billion into deals in India, reports MoneyTree.

Here are the MoneyTree regional and sector top 10 lists:

2007 Amount Invested by Region

Silicon Valley — $10.1 billion
New England — $3.7 billion
San Diego — $2.0 billion
Southeast — $1.9 billion
New York Metro — $1.7 billion
LA/Orange County — $1.6 billion
Northwest — $1.6 billion
Texas — $1.4 billion
Midwest — $1.3 billion
DC/Metroplex — $1.2 billion

2007 Amount Invested by Sector

Software — $5.27 billion
Biotechnology — $5.22 billion
Medical devices and equipment — $3.9 billion
Industrial/Energy — $2.7 billion
Telecommunications — $2.1 billion
Media and entertainment — $1.9 billion
Semiconductors — $1.8 billion
IT services — $1.3 billion
Networking and equipment — $1.3 billion
Business products and services — $840 million

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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  • Thomas

    The figures represent investments from and into the US only, I guess?

  • http://www.xconomy.com/author/bbuderi/ Robert Buderi

    Hi Thomas,

    It deals with venture investments in U.S. firms but those investments can come from outside the U.S.