Venture capitalists did not take a spring break from doing deals in Q2 as the quarter ended with 7% more deals and 18% more capital invested than the previous quarter.
During Q2, 751 U.S. companies received about $5.8 billion in venture funding, compared to about 674 companies raising about $4.9 billion in the previous quarter, according to The MoneyTree Survey from PricewaterhouseCoopers, Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association.
Venture professionals and observers say that the quarterly rebound is not necessarily a sign of investor confidence, but is more likely the result of a consistent ebb and flow of deals that occurs year-round.
“When the good deals are available, they’re available,” says Suzanne King, a partner with New Enterprise Associates (NEA), which was the industry’s most active firm, according to the MoneyTree survey. The Baltimore-based firm closed 21 deals in Q2, ahead of Draper Fisher Jurvetson (DFJ), which closed 20 deals.
“The third quarter is a little slower for a lot of reasons, but it’s not by vast numbers,” King says. She points out that over the past five years, VCs have tended to close fewer deals in the third quarter than the rest of the year.
In Q2, software continued to be the dominant sector by far, with 186 companies taking in more than $995 million. The most capital intensive sector, health care, was the second-most popular with investors, dividing $909 million among 97 companies. Internet companies remained strong, with 101 companies downloading more than $803 million from VCs. Biotechnology was the next most popular sector, with 70 companies taking in almost $800 million.
The largest venture deal of the quarter was for insurance startup Integro Ltd. with over $300 million, followed by Edison, N.J.-based VoIP provider Vonage, which raised $200 million from 3i Technology Partners, Bain Capital Venture Fund, Institutional Venture Partners, Meritech Capital Partners and NEA.
Princeton, N.J.-based Esprit Pharma closed on $63.4 million from APAX, Domain Associates and NEA. Palo Alto, Calif.-based Jazz Pharmaceuticals buoyed the quarterly figures by closing on $100 million of a previously announced $250 million Series B round. Caspian Networks, a San Jose, Calif.-based communication switch provider, raised $55 million in Series B funding from ABN AMRO, Oak Investment Partners, Morgenthaler Partners, NEA and U.S. Venture Partners.
“Right now the general emotional attitude about the markets is pretty good,” says Warren Packard, managing director with DFJ. “Our companies are growing and products are selling: that all leads itself to a better financing environment. It’s a sharp contrast to 2002 and 2003.”