2007 Venture Capital Investing Hits Six-Year High at $29.4 Billion

Market Wire, January, 2008

Venture capitalists invested $29.4 billion in 3,813 deals in 2007 -- marking the highest yearly investment total since 2001 -- according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Financial. The total invested in 2007 represents a 10.8 percent increase in dollars and a five percent increase in deal volume over 2006. Investments in the fourth quarter of 2007 totaled $7.0 billion in 963 deals, marking the fourth straight quarter with investments totaling more than $7 billion -- a phenomenon not seen since 2001.

Much of the increase in investments over the prior year can be attributed to record investment levels in the Clean Technology and Life Sciences sectors as well as strong investment levels in Internet-specific companies. Seed/Early-Stage companies received more dollars in 2007, but Later Stage investments experienced the most dramatic increase during the year. At the same time, first-time financings reached a six-year high as venture capitalists placed more initial bets in companies across multiple sectors.

Mark Heesen, president of the National Venture Capital Association, said, "The annual increase in venture capital investment in 2007 was extremely rational as the industry is now investing in a mix of sectors that is much more capital intensive than it has been in the past. And despite the capital needs of industries such as clean technology and life sciences, we only saw a single digit increase in deal volume which suggests that a fair amount of discipline is being applied to investment decisions. We are hopeful that this prudent investing will continue as the promise of innovation across all sectors is at an all-time high."

Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers LLP, observed, "2007 was a good year to be an entrepreneur! With an encouraging M&A market and the most venture-backed IPOs that we've seen in several years, it's no surprise that VCs have stepped up their investments. Four straight $7 billion plus quarters is a clear indicator that VCs have a positive outlook on their investing opportunities, and that means good things for entrepreneurs looking for funding. And, with the large number of Later Stage companies receiving investments, it appears that VCs are banking on the markets to stay active throughout 2008."

Sector and Industry Analysis

The Life Sciences sector (Biotechnology and Medical Device industries together) set an all-time record for venture capital investing in 2007 with $9.1 billion in 862 deals, compared to $7.6 billion going into 786 deals in 2006. While both industries experienced double-digit increases over the prior year, the most significant growth was seen in the Medical Device industry, which rose 40 percent in 2007 to $3.9 billion going into 385 deals. For the year, Life Sciences accounted for 31 percent of all venture capital invested, which also represents an all-time high. Life Sciences also retained its position as the number one investment sector for 2007.

Software investing remained relatively flat in 2007, consistent with levels over the last five years with $5.3 billion going into 905 deals, compared to $5.1 billion going into 920 deals in 2006. Despite the lack of growth, it still remained the largest single industry category for the year both in terms of deals and dollars, edging out Biotechnology for the top position.

The Clean Technology sector, which represented two of the five biggest deals of the year, experienced significant growth in 2007 with $2.2 billion invested in 202 deals. This investment level represents a 47 percent growth in dollars and a 58 percent growth in deal volume over 2006 when $1.5 billion was invested in 128 companies. Clean Technology crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation.

Internet-specific companies received $4.6 billion in 748 deals in 2007, an increase of 12 percent and eight percent, respectively, over 2006 when these companies received $4.1 billion in 691 deals. 'Internet-specific' is a discrete classification assigned to a company whose business model is fundamentally dependent on the Internet, regardless of the company's primary industry category. These companies accounted for 16 percent of all venture capital dollars in 2007, approximately the same percentage as in 2006.

The Media and Entertainment industry saw more venture capital dollars in 2007, with $1.9 billion going into 340 deals, compared to 2006 when $1.7 billion went into 318 deals. Other industries that saw increases in deals and dollars during the year include Business Products and Services, Financial Services, IT Services, and Retailing/Distribution.

Telecom companies saw a decrease in investment in 2007 with 290 deals receiving $2.1 billion dollars, a drop from the $2.6 billion in 301 deals they captured in 2006. Other industries that experienced declines in deals and dollars in 2007 include Healthcare Services, Semiconductors, and Electronics/Instrumentation.