VC investments reach 5-year high in Q1

Venture deals broke new ground during the first quarter of 2006, hitting their highest point in five years, according to a study to be released Monday.

VCs invested $6 billion in 564 deals during the first quarter, compared to $5.1 billion invested in 532 during the same period last year, according to a study by Dow Jones VentureOne and Ernst & Young LLP.

The MoneyTree Survey by PricewaterhouseCoopers, Thomson Financial (publisher of PE Week) and the National Venture Capital Association is expected to release the results of its study on venture investment on Tuesday.

Most of the increased investments in the quarter came from follow-on rounds. Second round financings accounted for $1.4 billion worth of venture investment, up 73% from the $832 million invested during the first quarter of 2005. At the same time, seed round financings fell more than 20 percent.

Though consumer-related Internet deals are what’s capturing the media’s attention lately, Internet startups attracted only 15% more investment dollars in the quarter than during the same time last year. Specific investment dollars were not available.

Information technology investors led the resurgence in the quarter, investing about $3.4 billion in 325 startups. Electronics was a particularly hot sub-sector, garnering 82% more investments during the first quarter than during than during the same period in 2005 as median deal size increased to $13 million from $9 million.

The biggest deal of the quarter went to ITA Software. The 10-year-old company scored $100 million in its first round of venture financing. Investors included Sequoia Capital’s Mike Moritz, who said ITA would help airlines move beyond software that was developed before Woodstock. Battery Ventures, General Catalyst Partners, PAR Investment Partners and Spectrum Equity also participated. Overall, investment in software companies fell 9% to $1.4 billion from $1.5 billion during the first quarter of 2005.

Health care companies collected $1.6 billion, up 22% from $1.3 billion they got in 2005. Biopharmaceuticals attracted a lot of attention during the quarter, the number of deals jumped 35% from the previous year, fueled, in part by an attractive exit market. Seven venture-backed biopharmaceutical startups went public during the first quarter, according to VentureOne. Particularly big deals in this sector went to Microbia, which raised $75 million from Fidelity Biosciences Group, Venrock Associates, Polaris Venture Partners, Sigma Capital Corp., Maverick Partners and undisclosed investors.