US venture capital investing reached its highest level since Q1 2002 in the second quarter of 2006 which saw 856 deals backed by US$6.3bn according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data by Thomson Financial. This represents a 25 increase in value and a 5% increase in volume.
The main drivers behind the growth was strong activity in the biotechnology, industrial/energy, and networking & equipment sectors, with seed/early stage deals and expansion stage both showing solid growth from Q1 2006. Funding for seed/early stage companies, while remaining stable in terms of dollars from the previous quarter, did show an increase of 13% in the number of deals, with US$1bn going into 268 deals, showing that VCs are committing smaller amounts to more businesses.
First-time financings reached a five-year high in terms of volume, with 282 companies receiving US$1.3bn, a fact associated with the recent fundraising cycle and reflecting the preference to deploy funds into first-time companies early in a fund’s life. Startup/early stage deals continued to represent the bulk of first-time deals and dollars with 68% and 56% of the total, respectively, which is in line with historical norms.
Mark Heesen, president of the National Venture Capital Association, said, “It appears as if the venture capital industry is slowly ratcheting up investment levels for the first time in four years, and these increases seem to be directed in a prudent manner. We are encouraged by the upswing in the number of seed and early stage deals – these companies represent the future of our industry. But equally as important is the diversity of the investment dollars into multiple industry sectors. Rather than pouring money into a lot of ‘me-too’ deals, venture capitalists are finding unique opportunities in emerging industries that allow the industry to scale up responsibly.”