Venture capital disbursement levels continued to fall in the third quarter, according to figures being released today by PricewaterhouseCoopers, Venture Economics (publisher of PE Week) and the National Venture Capital Association (NVCA). This is the tenth straight quarter that less capital was committed to U.S.-based companies, and the ninth out of the last 10 in which fewer companies received funding.
Between July and September, 647 companies raised approximately $4.45 billion. This is down over 25% from the $6.01 billion pumped into 838 companies during the previous quarter, and represents a 49% drop from the $8.68 billion raised by 1,085 companies in the third quarter of 2001. Average deal size also declined, with just $6.92 million invested per transaction.
“Venture capitalists have concerns regarding the front-end and back-end of the deals they are evaluating,” says Mark Heesen, president of the NVCA. “On the front-end, they are concerned that young companies are going to have difficulty gaining traction in terms of customers and revenue due to the decline in technology spending. On the back-end they are concerned about sobering valuations and illiquidity. Both sets of concerns are resulting in an increasingly cautious venture community.”
Overall, investors were most likely to invest in expansion-stage capital, an asset segment that received 57% of all committed capital and 56% of all deals during Q3. These percentages were relatively similar to what was seen in Q2, as was the same for early- and seed-stage deals. The only real gainers were later-stage plays, which represented 20% of all committed capital in Q3 after making up just 13% in Q2. Later-stage deals also provided the largest per-deal capital average with $9.67 million.
The quarter’s largest winner in terms of capital commitments was NuVox Communications Inc., a communications services provider formerly known as Gabriel Communications Inc. The Chesterfield, Mo.-based company in August secured $66 million in its fifth round of funding from such existing investors as JPMorgan Partners, Goldman Sachs, Norwest Equity Partners and Whitney & Co. Not all was rosy for NuVox, however, as its $97.65 million post-money valuation was a far cry from the $444.89 million mark it received following an $87 million Series D funding in September 2001.
Following NuVox on the top fund-raiser list was Exigen Inc., a San Francisco-based automation software company that in July netted $62 million in its first round of institutional funding. Lightspeed Venture Partners led the deal, and was joined by Focus Ventures. Other top gainers in Q3 included: MetroPCS Inc. with $60 million; ev3 with $58.84 million; EyeTech Pharmaceuticals Inc. with $54.2 million; and Advanced Disposal Services Inc. with $52.9 million.
The most active investor in Q3 was U.S. Venture Partners (USVP), which pumped $52.6 million into 16 deals for companies like MicroVention Inc., DiTrans Corp. and BitBlitz Communications.
Internet-specific companies led the industry sector rankings in Q3, taking in 25.54% of all investments. Next was the computer software sector with 15.76%, followed by medical/health (15.76%), communications/media (12.83%), semiconductors (8.23%) and biotechnology (6.69%).
For more on this story, including more charts, check out today’s print edition of Private Equity Week.
Contact Dan Primack
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