Venture Capital Investment Declines in Q1 2008 According to the MoneyTree Report

Venture capitalists invested $7.1 billion in 922 deals in the first quarter of 2008, according to the MoneyTree(TM) Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA) based on data provided by Thomson Reuters. Quarterly investment activity was down 8.5 percent from the fourth quarter of 2007 when $7.8 billion was invested in 1,045 deals, with 11 of the 16 industries tracked in the survey experiencing a decrease in the level of investment and 14 of the 16 experiencing a decline in deal volume. Despite the decline, the first quarter was well within recent quarterly investment levels and the fifth highest quarter since 2001.

"Venture capitalists still have large amounts of money in their coffers, therefore it's no surprise to see a solid level of investing continue," said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. "VCs have weathered numerous economic cycles and will continue to fund companies with innovative ideas and solid business models while they also stand behind their portfolio companies for the long-term."

"Despite the current economic downturn in the United States, venture capitalists are still putting money to work across multiple industries and stages of development," said Mark Heesen, president of the NVCA. "The continued interest in the life sciences and clean technology industries, as well as the traditional IT sectors, reflects the long-term investment horizon that the venture industry has always embraced. We do not expect to see significant declines in investment levels in the coming year. However, the dollars going to later stage investments could increase if the IPO window remains closed for an extended period of time and venture capitalists have to sustain companies longer than expected."

Industry Analysis

The Biotechnology industry narrowly edged out Software as the number one industry sector for the quarter with $1.27 billion going into 126 deals, due to a nine percent drop in funding for Software companies. However, despite being outpaced in dollars by Biotech, Software captured the largest number of deals in Q1 with 234 deals receiving a total of $1.26 billion, representing one-fourth of all deals in the first quarter.

The Life Sciences sector (Biotechnology and Medical Devices combined) continued to dominate VC investing in the first quarter with $2.3 billion going into 220 deals, approximately the same amount that was invested in the fourth quarter of 2007. Investments in Life Sciences companies represented 32 percent of all investment dollars and 24 percent of all deals in the first quarter.

The Clean Tech sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw a drop in investment levels with $625 million going into 44 deals in the first quarter. This represented a 6 percent decline in the dollar level in the Clean Tech sector from the fourth quarter of 2007 but a 51 percent increase from the first quarter for 2007. The largest deal in the first quarter was a Clean Tech company, which captured $130 million. Additionally, four of the top 10 largest deals in the quarter were in the Clean Tech sector.

Internet-specific companies garnered $1.3 billion going into 195 deals in the first quarter, a seven percent decrease in dollars over the fourth quarter of 2007 when $1.4 billion went into 217 deals. Four of the last five quarters have seen Internet-specific investment of more than $1 billion. 'Internet-Specific' is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company's primary industry category.

Semiconductors had a positive quarter with $566 million going into 50 deals, an increase in both deals and dollars from the fourth quarter when $458 million went into 47 deals. Other industry sectors which saw increases in dollars include Financial Services, Telecommunications, and IT Services. Only the Semiconductor industry saw more deals as well as dollars in the first quarter.

First-Time Financings

The dollar value of first-time deals (companies receiving venture capital for the first time) declined with $1.6 billion going into 294 first-time deals. First time financings accounted for 23 percent of all dollars and 32 percent of all deals in the first quarter compared to 29 percent of all dollars and 34 percent of all deals in the fourth quarter. The decline represents an 18 percent drop in deals from the fourth quarter of 2007 when $2.2 billion went into 360 first-time deals.

Companies in Software, Medical Devices, Biotechnology, and Media/Entertainment received the highest level of first-time dollars, while Financial Services, Computers & Peripherals, and IT Services also saw more dollars invested into their industries for the first-time this quarter as compared to last. Only the Media/Entertainment industry experienced an increase in both dollars and deals with 45 companies receiving $210 million in funding.