Venture capital investment in the US continued to fall in the second quarter to 2002 reaching $5.7 billion, an 11 per cent decrease from the previous quarter and the lowest level since the boom of 1998, according to the PricewaterhouseCoopers/ Venture Economics/ National Venture Capital Association MoneyTree Survey. A total of 819 companies received funding compared to 826 the previous quarter. However, 2002 is still predicted to be the fourth largest year for venture investing with life sciences promising impressive results for the future.
Investments in biotechnology were an exception to the overall decline in investments, up 15 per cent from $836 million in the first quarter to $958 million. The medical devices sector also showed significant growth with investments totalling $556 million, a 43 per cent increase over the first quarter. Combined, the life sciences accounted for 27 per cent of all venture capital investing, the highest allocation in the last five years.
Software retained its majority share, attracting the largest amount by value at $1 billion, although this represents a 16 per cent decrease from the previous quarter’s $1.2 billion figure.
VCs continue to support their existing portfolios in tough times. This is reflected in the figures with the majority of companies funded and amount invested in follow-on financings. First rounds accounted for 25 per cent of total deals and 21 per cent of dollars invested.
Jesse Reyes, vice president at Venture Economics, said: “This has been a sustained trend over the past few quarters. For every dollar invested in a new company, five to seven are invested in existing portfolio companies.” He adds that the only areas where investors are putting more money into new deals, as opposed to follow-on financings are in software where nearly one-quarter of the money is for new deals, and biotechnology where around a third is for new investments.
Mark Heesen, president of the National Venture Capital Association, says successful venture capital investing in these uncertain times requires balancing the reality of the here and now with the promise of the long-term horizon. He said: “History tells us that some of tomorrow’s most successful companies will be funded during today’s down cycle. Patience continues to be required by all parties involved.”