Let optimism reign. A third survey of recent VC activity shows that venture investments increased 17 percent during the third quarter, compared with the previous quarter. While the actual numbers vary, the findings of the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters, reinforces the more optimistic views expressed last week by ChubbyBrain, the New York-based information services firm.

Results of the MoneyTree report for the three months that ended Sept. 30, along with a quick recap of two rival surveys released since last week, show how disparate the numbers reported in such studies can be:

—MoneyTree says venture firms invested $4.8 billion in 637 deals—a 17 percent increase in capital invested but a 3 percent decline in deals compared to the second quarter of 2009, when MoneyTree counted $4.1 billion invested in 657 deals. In its statement on the NVCA website, MoneyTree calls the quarter-to-quarter increase in VC investing “very encouraging.” (It’s down 33 percent, though, compared to the $7.2 billion in 994 deals that MoneyTree counted in the third quarter of 2008.)

—Dow Jones VentureSource reports that VCs invested $5.1 billion in 616 deals—a 6 percent drop from the $5.4 billion invested in 595 deals during the preceding quarter. In its statement, Dow Jones says its results indicate that the slow recovery for venture capital has faltered. (It’s also down 38 percent from the $8.2 billion in 663 deals that DowJones counted in the third quarter of 2008.)

—ChubbyBrain says VCs invested $6.056 billion in 680 deals during the quarter—a 14 percent increase over the $5.329 billion invested and an 11 percent increase in deals from the second quarter (it didn’t specify the Q2 deals number but I estimate their count would have been roughly 612). Like MoneyTree, ChubbyBrain finds the third quarter results encouraging, saying they are a sign that technology-based startups are gaining increased momentum. (ChubbyBrain, which lacks a prior-year database because it launched its website earlier this year, estimates that VC investments for Q3 are down almost 16 percent from the $7.2 billion invested in the year-ago quarter.

I usually don’t worry about differences between various surveys, and try to focus on the trends that emerge within the data from each survey. That’s because different organizations use different methods to count venture capital investments, and different ways of organizing their data. For example, should VC investments in wireless health get counted as life sciences or telecommunications? In general, the broader trends reported by each survey also tend to align in the same direction, so it is unusual to see such a contrast between the data and conclusions from Dow Jones VentureSource and the other two surveys. ChubbyBrain, which is fighting to establish itself as an information services provider for investors, startups, and aspiring entrepreneurs, has an interesting and provocative post on its website about the differences they see in survey methodologies.

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Former BAE Systems executive Walt Havenstein takes over today as SAIC’s new CEO, but the big question is if the new boss will move the company’s headquarters from San Diego to McLean, VA. Get our roundup of San Diego’s biztech news here.

—San Diego defense contractor SAIC (NYSE: SAI), which has been shifting some key executives and corporate functions to Northern Virginia since 2006, appears poised to announce the relocation of its headquarters from San Diego to McLean, VA. If SAIC moves its HQ, San Diego’s roster of Fortune 500 companies would go from four to three. It only increased to four in August when CareFusion (NYSE: CFN), the Cardinal Health spinoff, established its HQ here. The other two are Qualcomm (NASDAQ: QCOM) and Sempra Energy (NYSE: SRE).

—How unique is your company’s culture? Xconomy asked the CEOs of startups in Seattle, Boston, and San Diego to use one word to describe their company’s corporate culture. We got 21 different answers. San Diego’s CEOs said Innovative, Love, Open, Entrepreneurial, and Speechless. Actually, “speechless” is my word. VMIX CEO Mike Glickenhaus was the only one who said, “I wish I could come up with one but I can’t.”

—At a time when rapid changes in technology are bringing Internet TV closer to reality, DivX CEO Kevin Hell says he is positioning the San Diego-based digital media company to be the friendly and agnostic technology provider. Hell says he wants the DivX format to be the “any-to-any-solution” that plays video content on any device from any manufacturer.

—Corporate buyout executives from Qualcomm and Google voiced cautious optimism about the economic climate for M&A deals involving venture-backed companies during a panel discussion organized last week by the San Diego Venture Group. Qualcomm’s Duane Nelles and Google’s Karim Faris also said it’s becoming more important for startups to secure an early corporate partner with a vested interest in developing the technology.

—San Diego Gas & Electric is leading a coalition of 28 companies, academic institutions, and other organizations to integrate emerging “smart grid” technologies in the regional power grid—and are bidding for $100 million in matching federal stimulus funds to help pay for it.

—Connect, the San Diego non-profit group that promotes technology and entrepreneurship, issued its second-quarter report on San Diego’s innovation economy. The study found 102 new technology companies were created during the three months that ended on June 30. That’s more than the 66 startups during the first three months of the year and better than the 76 companies launched during the same quarter in 2008.

—In its fifth edition of the “Venture Impact” report, the National Venture Capital Association found that venture-backed companies employed more than 12.1 million Americans in 2008. These companies generated $2.9 trillion in revenue in 2008, roughly one-fifth of U.S. gross domestic product. San Diego attracted $1.2 billion in venture investment across biotechnology, software, and information technology, among other areas, according to the NVCA report.

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New England companies raised more venture dollars and completed more VC deals in the second quarter of 2009 than they did in the first three months of this year, according to two reports on venture investment activity released recently. Still, the total number of deals and capital invested in the region during the three months that ended June 30 are way off from a year ago.

Firms in New England invested a total of $640.1 million in 85 deals during the second quarter, down from $1.05 billion that went into 94 deals during the same period last year, according to Dow Jones VentureSource. Perhaps some solace can be derived from the fact that the 85 deals done during the quarter amounted to a 57 percent increase over the 54 VC deals completed during the first quarter of 2009. Total VC dollars invested, however, increased by less than 2 percent, to $640.1 million in the second quarter from $629.2 million in the first three months of 2009. (See our Top 10 Deals list for the quarter on page 2 of this article.)

Regional data from The MoneyTree Report released yesterday by PricewaterhouseCoopers, the National Venture Capital Association, and Thomson Reuters shows a similar trend. The MoneyTree survey counted $466.9 million invested in 76 deals during the second quarter, down from the $825.8 million that went to 128 deals during the same quarter of 2008. (The rival surveys use different methods, sources, and criteria to prepare their respective reports.) MoneyTree showed a 15 percent uptick in venture capital invested from the previous quarter, but only an 8.6 percent increase in the number of deals.

Despite the rise in venture activity compared to the first quarter, the recession still appears to be weighing on VC firms’ willingness or ability to dole out money to tech startups. The Dow Jones figures show that deal amounts in New England are getting smaller even in sectors like healthcare where venture-backed companies are keeping pace with the number of deals they completed last year. And if what venture investors tell us is true, many recent deals involve older companies in need of capital to stay afloat until those companies can go public or find a corporate buyer. That could mean less money for new startups in search of capital to get their operations off the ground.

Here are some of the key figures that Dow Jones reported:

—The median deal amount across all sectors in New England was $4 million in the second quarter of 2009, way down from the median deal size of $7.6 million during the same period last year.

—The number of the region’s healthcare deals—involving biotech, medical devices, healthcare IT, and health services firms—was up slightly in the second quarter compared to the same period last year, from 28 to 29 financings. But total dollars invested fell to $370.3 million in the second quarter from $444.6 million in Q2 of 2008.

—Energy companies in the region raised only $8.2 million in four deals in the second quarter of this year, down from $24.4 million in six deals in the same quarter last year.

—The number of IT deals held relatively steady at 35 in the second quarter, down from 40 deals in the same period of 2008. Still, the total raised declined from $398.4 million to $150.2 million in the same quarter-to-quarter comparison.

See next page for the region’s Top 10 venture financings of the second quarter. …Next Page »

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Venture capital invested in U.S. startups during the second quarter was roughly half the amount invested during the same quarter last year, but two venture capital surveys found encouraging signs of improvement from the abysmal first three months of 2009.

VCs put $3.67 billion into 612 deals during the three months that ended June 30, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. That’s down 51 percent from the dollars VCs invested during the same quarter last year, when $7.56 billion went into 1,059 deals nationwide. On the bright side, the capital allocated from April through June represents a 15 percent gain over $3.2 billion invested during the first three months of the year, which hit the lowest level since the first quarter of 1997, according to the MoneyTree Report.

It’s also a less impressive rebound than was suggested in the early read on VC data we got last week from ChubbyBrain.

Q2 VC activity

Dow Jones VentureSource highlighted a similar trend in the VC data it released over the weekend, which shows $5.27 billion was invested in 595 deals during the second quarter. While that’s still dramatically lower than the $8.3 billion that Dow Jones counted in 726 deals during the same quarter last year, it marks a 32 percent improvement over Dow Jones’ numbers for the first quarter. The trends spotlighted by the two reports are often comparable, but Dow Jones and MoneyTree use different methods, sources, and criteria to generate their respective data.

Beyond the broad trends, there are interesting details in both reports. For example:

—VCs invested a total of $1.5 billion in 160 life sciences companies during the second quarter—marking a 47 percent rebound over the prior quarter, according to the MoneyTree Report. “This is the most amount of money we’ve ever seen going into this sector, and considering the environment out there, that is quite a statement,” says Tracy Lefteroff, global managing partner of PricewaterhouseCoopers’ venture capital practice. Dow Jones VentureSource highlights a similar …Next Page »

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It didn’t bother me that my attendee badge was missing from the registration booth when I arrived at Convergence: The Life Sciences Leaders Forum in Newport, RI, last week. I suspect it was stolen by the same conference gremlins who bilked my badge at the NVCA annual meeting this spring, the 2007 BIO meeting in Boston, and several other events that I’ve attended in recent years. And though I started my stint at Convergence down one badge, I left it up a fist full of business cards, courtesy of the life sciences and healthcare innovators, executives and investors who had assembled for the three-day confab.

The gathering, organized by Boston-based Future Forward Events, produced plenty of unexpected moments, like when Genzyme’s iconic chairman and CEO Henri Termeer told attendees, during his fireside chat with Sirtris CEO Christoph Westphal, that Westphal had called him for advice during Sirtris’ negotiations last year with drug giant GlaxoSmithKline. (Read on for other tidbits from the Termeer-Westphal chat.) Unsurprisingly, much of the discussion, at least for the first two days of the meeting that I attended, centered on the dramatic changes occurring in the industry due to the dour economic climate and the ongoing policy and leadership changes in Washington, D.C. And in a change from years past (this is the sixth year for the event), everything was on the record unless the speaker clearly stated otherwise. Which means I can share many of the insights I gleaned from the panels and speakers and from my conversations during the event’s ample mingling opportunities. I even did a couple posts on Twitter during the event. Here are some highlights:

—Healthcare policy wonks were well represented at Convergence, and for good reason. The life sciences industry faces major hurdles due to policy changes under discussion at the federal level. Alan Eisenberg, executive vice president of emerging companies at the Biotechnology Industry Organization, listed the top policy issues that the industry group is following, including: proposed patent reforms and their potentially detrimental effects on life sciences firms; the regulation of generic, or “follow-on,” biotech drugs; improving the opportunities for firms in the industry to raise capital; and, perhaps most important, healthcare reform. On some of the big spending plans currently circulating in Washington, Eisenberg said: “Any one of these has the potential to suck the oxygen out of capital.”

—As I mentioned, we were clued in on some of the behind-the-scenes conversations that took place between Sirtris’ Westphal and Genzyme’s Termeer before London-based Glaxo purchased Cambridge, MA, Sirtris for $720 million last spring. Termeer told the audience that Westphal …Next Page »

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I am at the annual meeting of the National Venture Capital Association being held in Boston lastthis week. The tone was remarkably upbeat—but only for those firms with either a new fund or who somehow avoided making a lot of overvalued investments during the last few years. There was a lot of rhetoric about how/when/whether the world will improve, whether VC’s will make money in cleantech, and when LPs will begin to wade back into the asset class.

But I did learn a number of things I did not know when I woke up…

* Revenues at VC-backed companies accounted for 20.5% of the nation’s GDP

* VC-backed companies represented 8.6% of all employment

* There are 12 million jobs at public companies which were once VC-backed

* Once companies went public, headcount grew 92% (94% in the 1980’s, 76% in the 2000’s – not a great trajectory admittedly)

* There were 1,171 new VC-backed companies in 2008

* Unfortunately there were only 6 IPO’s in 2008 and 341 M&A transactions that same year

* It now takes on average 9.6 years to get VC-backed companies public (or 6.5 years for an M&A transaction)

* $4.5 billion is being spent now from the stimulus package on “smart grid” technologies

* One in three people have been meaningfully helped by VC-backed biotech companies (staggering)

* WalMart recently lowered the cost of generic drugs to $4 which they believe served to take more costs out of the healthcare system than any single act of healthcare legislation

* Shockingly this year the 65,000 annual H-1B visa cap was not hit in the first week of being available (not happened before) which speaks to the limitations instituted that foreigners are not able to displace US workers

* There is now great anxiety that the federal government will regulate the VC industry given the “concerns” that the VC industry may create something called “systemic risk”

The industry I work in has certainly been an engine of innovation and job growth; to hear some of the specific statistics only reconfirms that understanding. It also underscores the need to get the VC ecosystem back on track and should provide caution to the government to be careful on how it feels it needs to regulate the industry.

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With patents counted, investments disclosed, and financial results reported, San Diego wireless giant Qualcomm seemed to dominate the Xconomy news last week. There were plenty of other developments, though, in life sciences, robotics, and other sectors of the innovation economy. Read on!

—By necessity, a few interesting nuggets got left out when we compiled our list of the top 25 patent winners in the San Diego region in 2008. San Diego’s Qualcomm (NASDAQ: QCOM), of course, ranked No. 1, with 283 patents issued. One interesting nugget we noticed later is that rival Broadcom (NASDAQ: BCRM), which is based in Orange County, (and therefore wasn’t on the list for this region) obtained twice as many patents, and ranks No. 25 in the world, with 643 patents issued. Information on the global top 35 is here. See our San Diego list here.

—Modu, a modular mobile phone maker based in Kfar-Saba, Israel, got $7 million in venture funding, according to a report in Calcalist, an Israeli daily newspaper. A U.S. spokesman for modu had no information on the deal, and Qualcomm later declined to comment.

—One of our most widely read stories last week was based on the responses we got from San Diego biotech leaders after New York-based Pfizer (NYSE: PFE) announced its $68 billion deal to acquire Madison, NJ-based Wyeth (NYSE: WYE). Among other things, they said it could slow down or stall buyouts of smaller biotechs by Wyeth and Pfizer. Read the full responses here.

—The global market for paid search marketing on the Internet has soared from about $500 million in 2001 to an estimated $20 billion this year. That likely explains why San Diego-based Covario, which provides analytical software and services to help customers optimize their search engine marketing, has been thriving. Coincidentally, Covario is holding its annual invitation-only conference on interactive marketing and digital advertising this week in La Jolla.

—San Diego security software developer Websense (NASDAQ: WBSN) acquired Defensio, which offers a spam filtering Web service. Websense wasted no time integrating Defensio’s software into its own ThreatSeeker Network.

—Biocom chief executive Joe Panetta laid out his agenda for lobbying on behalf of San Diego’s life sciences industry. Panetta told Luke he is planning to make at least one trip a month to Washington this year.

—A critical test phase is drawing near for the Fire Scout, a robotic helicopter under development in San Diego by Northrop Grumman (NYSE: NOC). The Navy plans a final round of operational tests this year for the “Vertical Unmanned Aerial System,” which is intended to provide “situational awareness” for a Naval battle group.

—The 11th-hour flap over the Feb. 17th deadline that requires U.S. TV stations to turn off their analog broadcast equipment and switch to all-digital broadcasting may seem far-removed to many people. But efforts to delay the change to June 12 created a crucial issue for San Diego’s Qualcomm. The wireless giant has spent hundreds of millions of dollars gearing up to use the 700 MHz spectrum being vacated by analog TV broadcasters for its MediaFLO TV service for mobile phones, which is set to launch in 80 markets on Feb. 18th. The House voted last week against the delay, which was good news for Qualcomm. But CEO Paul Jacobs suggested the measure isn’t dead.

—Sequenom (NASDAQ: SQNM), the San Diego medical diagnostics company, reported that its new technique that tests for Down syndrome was almost 100 percent accurate in a recent study.

—Billionaire investor Carl Icahn increased his stake in San Diego’s Amylin Pharmaceuticals to 8 percent from about 7.3 percent. Icahn disclosed in a filing with the Securities and Exchange Commission that he intends to nominate five new directors to Amylin’s board, apparently to push for a sale of the company.

—San Diego’s Slacker, which provides customized music online and for wireless devices, has raised $5 million in bridge financing. The startup did not discuss the deal, which increases its total venture funding to $58.5 million since the company’s founding in 2004.

—The San Diego Venture Group invited three out-of-town venture capital partners to provide their outlook on the industry in 2009. With only six IPOs in 2008, chairman Dixon Doll of the National Venture Capital Association called for overhauling the venture industry. Among the changes Doll outlined is a proposal to promote new investment vehicles that provide a late-stage alternative to IPOs by matching a company’s VC investors with buyers in private stock placements. The industry group is expected to unveil its proposals in coming weeks.

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The venture capital model might not be completely broken, but the chairman of the National Venture Capital Association says it needs to be fixed.

With only six venture-backed IPOs in 2008—the worst showing since 1976—NVCA chairman Dixon Doll says the venture industry needs to help restart stalled capital markets. Doll says the Virginia-based NVCA is preparing an initiative to restore the system by overhauling the pipeline for exciting new stocks, the venture capital industry. The recovery plan, which the NVCA plans to release in the next few weeks, includes recommendations for Congress and the VC industry as a whole.

Doll, a co-founder and general partner of Menlo Park, CA-based DCM, outlined the initiative in a breakfast presentation yesterday at the San Diego Venture Group. The session, billed as a venture capital outlook for 2009, drew more than 450 people.

“There are too many small companies out there today,” Doll told the crowd, “Our industry has not produced as many transformational companies in the past few years as it did in the previous decade.” He later suggested, “VCs need to be much more aggressive in consolidating companies…even within their own portfolios.”

Doll was outspoken about VC practices, saying the limited partners that invest in venture firms “are fed up with the mediocre returns.” He suggested that one way to improve investment returns is for VCs to stop investing in the underperforming companies in their portfolios. Doll was hardly alone, though, in criticizing VC performance during a panel discussion that included Amir Nashat, a general partner with Polaris Venture Partners in Boston, and Victor Westerlind, a general partner at RockPort Capital in Menlo Park, CA.

“To pretend that the world hasn’t changed …Next Page »

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The National Venture Capital Association usually prefers to track VC performance over a decade-long period, or possibly a five-year span. That’s because measuring performance over a one-year period, say, usually isn’t as useful since investment returns gyrate all over the place in the short term, according to Emily Mendell, the NVCA’s vice president for strategic affairs.

But current economic conditions prompted the Virginia-based association today to include performance results comparing the one-year period that ended June 30 with the one-year period that ended a quarter earlier, on March 31. The results, courtesy of the number crunchers at Thomson Reuters, show an 8.2 percent decrease in investment return, to 5.1 percent.

That still beats the performance of the NASDAQ and S&P 500. But because the economic downturn has basically closed the IPO window for new companies, making it much harder for VCs to cash out, that return-on-investment is expected to decline going forward, Mendell says. It’s also important to note that the latest results lag the markets’ gyrations of the past few months. As NVCA President Mark Heesen put it in a statement: “We have yet to see the full impact of the capital markets crisis in the venture capital performance numbers.”

Below is a table showing venture returns through June 30 over different time periods, and for different stages of investment.

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The venture-capital numbers for the U.S. are out for the third quarter of 2008, and they don’t quite reflect the turmoil in the broader financial markets—at least not yet. Total venture investment in U.S. companies in Q3 amounted to $7.1 billion in 907 deals, which is down 7 percent from the second quarter of this year, when there was $7.7 billion invested in 1033 deals. The bright spots were energy and biotech deals, while there could be real trouble brewing for certain types of Internet-startup deals and capital-intensive tech operations like telecommunications and semiconductor companies.

That’s the word from a quarterly report by the MoneyTree division of PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. Dow Jones VentureSource also released its Q3 venture-capital figures this weekend, and they show the same 7 percent drop and grossly similar trends. Namely, deal activity is at a three-year low. Energy is up, information technology and the Web are down, and health care, biotech, and pharmaceuticals are fairly flat.

(To see the Top 10 Deals list for the nation for Q3, read on or click here to go straight to page 2.)

Sector Shakeout?

According to the MoneyTree report, biotech was the top industry sector, with $1.35 billion invested in 114 deals, a 20 percent increase over Q2 of this year. This just barely edged out the software sector, which remained strong with $1.34 billion invested in 214 companies. The fast-rising cleantech sector (defined as alternative energy, pollution and recycling, power supplies, and conservation) saw $1 billion go into 73 deals, up 13 percent over last quarter.

Potential trouble spots include “Internet-specific” companies, which received $1.1 billion in 194 deals —still a large number, but a 36 percent drop over Q2. The telecom industry saw only $323 million go into 45 deals, its lowest investment level since Q3 of 1997. And the semiconductor industry saw $396 million invested in 50 deals—fairly slow, but a 7 percent increase over the previous quarter. More broadly, in terms of overall deal stages, there were 259 first-time deals, which was down 12 percent from Q2, possibly reflecting a future trend towards fewer early-stage deals, as exit markets are all but closed.

Regional Mixed Bag

No surprise to anyone, Silicon Valley topped the deal list, with $2.77 billion put into 292 investments, down 11 percent from Q2. Investments in the New England region stayed reasonably strong in the third quarter as well, as the area saw $834.1 million poured into 117 deals. That was down only 2.3 percent from the second quarter, in which $853.8 million was invested in 123 deals. Similarly, third-place Los Angeles/Orange County rang up $572.5 million in 54 venture deals, down only slightly from the $593.8 million from the previous period.

It got worse both north and south of LA. Venture investments in San Diego in the third quarter fell to just $178.4 million (22 deals), a 52 percent tanking from Q2 and the lowest quarterly tally for the region since the first quarter of 2005. The picture in the Northwest was also fairly bleak, as venture investment sank to $294.9 million, down some 16 percent from $349.3 million in Q2.

On the international front, U.S.-based venture capitalists invested $526 million into 51 Q3 deals in China, down slightly from Q2 ($574 million in 52 deals). Meanwhile, investment into India by U.S. venture firms fell 43 percent to $271 million in 28 deals (compared to $473 million in 40 deals in Q2). On the flip side, investors in Europe and Asia have been playing a greater role in financings of U.S. companies, says venture capitalist Jim Healy of Sofinnova Ventures.

Outcome Uncertain (but the Trend Is Certainly Down)

The question on everyone’s mind is, where is this heading? “While overall venture investing …Next Page »

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There are two main doors that a venture-backed company can go through to provide a payday for its early investors: go public, or get acquired. And for the time being, the first door has slammed shut. In the second quarter of 2008, which ended yesterday, there were no initial public offerings by venture-backed companies in the United States. Zero.

It’s the first time since 1978 that U.S. IPO activity has come to a complete halt, according to the National Venture Capital Association (NVCA). The first quarter wasn’t much better, with only five IPOs by venture-backed companies. In 2007, by contrast, there were 86 (18 in Q1, 25 in Q2, 12 in Q3, and 31 in Q4). In a report issued today in cooperation with financial news organization Thomson Reuters, the NVCA calls the situation “concerning enough to be characterized as a capital markets crisis for the start-up community.”

Nobody thinks the IPO market is dead—but it may be in for at least several more quarters of suspended animation. “It’s not Chicken Little,” says Michael Greeley, a general partner at Flybridge Capital Partners and president of the New England Venture Capital Association. “You just have to modulate your plan.”

For companies, that could mean going out to investors for another funding round—or just making their existing capital last longer. “Clearly, if you thought your company was going to raise capital based on an IPO price, that is not going to happen for another year or two,” says Greeley. “At Flybridge we just finished our partners meeting and for us, the lesson is what can we be doing now to operate our companies in a really disciplined, capital-efficient way.”

That’s looking like a wise idea. Statistics gathered by the NVCA show that 2008 is on track to be the worst year for IPOs since 2002, right after the dot-com crash, when there were only 22 IPO exits for venture-backed companies. And the bad year is part of a relatively disappointing decade, at least compared to the early 1990s: Between 2001 and 2007 there were only 385 IPOs among venture-backed companies, compared to 1,353 for the period 1991-1997. As a corollary, there’s a longer wait for the companies that do go public: the median age of venture-backed companies at IPO was 8.6 years in 2007, compared to just over 6 years in 1997.

M&A and IPO Activity Among Venture-Backed Companies, by Year

Source: National Venture Capital Association

In a survey last week, the NVCA asked its own members to name the three biggest reasons for the current IPO drought. Of the 662 venture partners who responded, 77 percent named “skittish investors” as a reason, while 64 percent pointed to the credit crunch resulting from the subprime-mortgage debacle, and 57 percent blamed the high cost of complying with Sarbanes-Oxley accounting rules for companies preparing to go public. A few other interesting reasons came up as well: lack of analyst coverage of smaller companies (18 percent), a generally poor selection of IPO candidates recently (15 percent), and the disappearance of investment banks willing to invest in early-stage companies (14 percent).

There was little optimism among NVCA members that the crisis will lift soon. Asked when they thought the IPO window would re-open, only 20 percent thought it would be this year. The largest group—43 percent—predicted that IPOs will pick up again around the summer of 2009, while 32 percent thought it might take until mid-2010, and 5 percent thought it would take even longer.

But while IPOs have dried up, the number of companies “in registration” with the Securities and Exchange Commission—that is, companies that have filed the paperwork to pursue IPOs—is about the same right now as it has been for the last five years:

Number of IPOs Per Year and Companies in Registration on the Last Day of Each Year

Source: National Venture Capital Association

I asked Heesen whether it was possible that the current dearth of IPOs would be offset later this year, if some of the 42 venture-backed companies currently in registration decide to stop circling the airport and come in for a landing.

He didn’t think so. “A very large number of companies, about 20 recently, have de-registered, saying they are no longer going to go the public route, and they’ve either been acquired or they’ve tried to secure additional financing,” Heesen noted. “And we also see quite a few companies registering just so that they can show the public at large and large corporations that they are Sarbanes-Oxley compliant and therefore ‘clean’ and ready to be acquired. It’s a for-sale sign, unfortunately, rather than a sign of interest in actually going public.”

There’s disagreement within the VC community over what all of this means for entrepreneurs and innovators. Greeley says that funds have raised a lot of capital that they’re itching to disburse, and predicts that …Next Page »

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The data are in on fourth quarter 2007 venture capital returns, and it was a very good year for venture funds. They returned 19.5 percent for the year, far outstripping the stock market.

That’s the good news in figures released today by Thomson Reuters and the National Venture Capital Association. But the picture is more mixed as you look more closely at the numbers. For starters, the fourth quarter showed a big falloff from the rest of 2007, pulling down the total return for the year, which had been running at 28.4 percent through the first nine months.

Overall, the figures provide a solid testament to venture funds, as the NVCA data shows that all stages of funds—early, balanced and later-stage—have outperformed the stock market over time. But the scary part might be the warning in today’s release, which carried the sub-heading, “Economic Troubles Could Impact Returns in 2008.”

“A continued economic slowdown and lackluster IPO market could begin to impact short term venture capital returns in 2008 as it has traditionally been the larger public offerings that drive the one and three year return numbers,” said NVCA president Mark Heesen in a statement. He tried to put some good light on the numbers, by adding, “However, we would have to experience a prolonged stagnation, more than a year of poor exit opportunities, for the ten and twenty year returns to suffer.”

Here’s the table of today’s data:

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More venture funds. More money raised. And it’s not a bubble.

So reads the trifecta of good news about venture capital in 2007, as reported today by the National Venture Capital Association and Thomson Financial. All told, 235 U.S. venture firms raised $34.7 billion last year, marking the highest level of activity seen since the heady days of 2001, when 318 venture capital funds took in $38.8 billion.

The number of funds raising money in 2007 was just six (2.6 percent) more than a year earlier. However, the dollar value of those funds rose 9.4 percent, up from $31.7 billion in 2006. Last year marked the fourth straight year of increases in both the number of funds and the dollars raised.

“The consistent and consecutive annual increases in venture capital fund levels reflect both an acceleration of the fundraising cycle as well as an increased need for capital within certain investment sectors,” NVCA president Mark Heesen said in a press release. Heesen citied venture investments in cost-intensive areas such as cleantech and life sciences as one reason for last year’s high fundraising figure. “As firms deploy capital faster they will have to go back out to the market sooner or raise larger funds,” he said.

On another positive note, the money raised in 2007 was well-distributed across funds that focus on companies at different stages of growth. Roughly $9.7 billion was raised through 112 early-stage focused funds; 63 balanced-stage focused funds (diversified funds that invest across multiple stages rather than just one) took in $10.6 billion; 24 later-stage focused funds raised $7.2 billion; and 22 expansion focused funds garnered $4.8 billion.

It all adds up to a strong year, and no bubble—or so the report seemed to indicate without stating the no bubble part directly. Said Heeson in his statement, “we are nowhere near the unsustainable fundraising levels of the 1999 to 2001 period when the industry raised more than $200 billion.” Alex Tan, global manager for Private Equity Content Operations at Thomson Financial, added: “While dollars raised in 2007 approached 2001 levels, the composition of these dollars based on fund stage focus stands in stark contrast to the composition seen in 2001.”

The three largest funds raised last year were:

Technology Crossover Ventures VII (Palo Alto, CA) — later stage, $3 billion
Bessemer Venture Partners VII (seven worldwide offices, no headquarters) — balanced stage, $1.3 billion
Vector Capital IV (San Francisco, CA) — expansion stage, $1.2 billion

Here are screen grabs of the rest of the data, including a table on new vs. follow-on funds, which were both up in 2007 as well.

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Massachusetts is second only to California when it comes to raking in VC dollars for cleantech—and those dollars are evidently piling up faster than maple leaves in autumn. This according to new data from Thomson Financial and the National Venture Capital Association.

The numbers, released yesterday, show that in the first three quarters of this year, U.S. venture capital firms invested some $2.6 billion during 168 cleantech deals. This is up from the $1.8 billion invested in the whole of 2006, which itself was more than 3 times 2005’s cleantech investment.

In terms of VC dollars raised in the first nine months of 2007, Massachusetts ($292.6 million) was a distant second to California ($726.2 million), but still way ahead of third-place Texas ($149.4 million).

U.S. Cleantech Investments by State (1Q-3Q 2007)

Source: Thomson Financial/NVCA

As far as technologies go, solar was the big winner, taking a $664.6 million piece of the pie. But the company that raised the most in Q1-Q3 was actually a coal gasification firm, GreatPoint Energy of Cambridge, MA. GreatPoint’s massive $100 million Series C round contributed the lion’s share of the $115 million it raised in that period from the likes of Advanced Technology Ventures (ATV), Draper Fisher Jurvetson, Khosla Ventures, and Kleiner Perkins Caufield & Byers.

With interest in cleantech investing exploding, some observers are sounding a note of caution. In the NVCA/Thomson announcement, for instance, NVCA president Mark Heesen emphasized the risks of playing in such a new space: “Investing in new technologies can be fraught with pitfalls and is not for the inexperienced or the faint of heart… Short-term ‘tourists’ should steer clear.” And Xconomist Bill Aulet has previously devoted some serious Xconomy real estate to his qualms about cleantech (much to the chagrin of many of our readers).

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