SOURCE: National Venture Capital Association

January 21, 2008 06:00 ET

2007 Venture Capital Investing Hits Six-Year High at $29.4 Billion

Life Sciences and Clean Technology Investments Reach Record Levels

WASHINGTON, D.C.--(Marketwire - January 21, 2008) - Venture capitalists invested $29.4 billion in 3,813 deals in 2007 -- marking the highest yearly investment total since 2001 -- according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Financial. The total invested in 2007 represents a 10.8 percent increase in dollars and a five percent increase in deal volume over 2006. Investments in the fourth quarter of 2007 totaled $7.0 billion in 963 deals, marking the fourth straight quarter with investments totaling more than $7 billion -- a phenomenon not seen since 2001.

Much of the increase in investments over the prior year can be attributed to record investment levels in the Clean Technology and Life Sciences sectors as well as strong investment levels in Internet-specific companies. Seed/Early-Stage companies received more dollars in 2007, but Later Stage investments experienced the most dramatic increase during the year. At the same time, first-time financings reached a six-year high as venture capitalists placed more initial bets in companies across multiple sectors.

Mark Heesen, president of the National Venture Capital Association, said, "The annual increase in venture capital investment in 2007 was extremely rational as the industry is now investing in a mix of sectors that is much more capital intensive than it has been in the past. And despite the capital needs of industries such as clean technology and life sciences, we only saw a single digit increase in deal volume which suggests that a fair amount of discipline is being applied to investment decisions. We are hopeful that this prudent investing will continue as the promise of innovation across all sectors is at an all-time high."

Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers LLP, observed, "2007 was a good year to be an entrepreneur! With an encouraging M&A market and the most venture-backed IPOs that we've seen in several years, it's no surprise that VCs have stepped up their investments. Four straight $7 billion plus quarters is a clear indicator that VCs have a positive outlook on their investing opportunities, and that means good things for entrepreneurs looking for funding. And, with the large number of Later Stage companies receiving investments, it appears that VCs are banking on the markets to stay active throughout 2008."

Sector and Industry Analysis

The Life Sciences sector (Biotechnology and Medical Device industries together) set an all-time record for venture capital investing in 2007 with $9.1 billion in 862 deals, compared to $7.6 billion going into 786 deals in 2006. While both industries experienced double-digit increases over the prior year, the most significant growth was seen in the Medical Device industry, which rose 40 percent in 2007 to $3.9 billion going into 385 deals. For the year, Life Sciences accounted for 31 percent of all venture capital invested, which also represents an all-time high. Life Sciences also retained its position as the number one investment sector for 2007.

Software investing remained relatively flat in 2007, consistent with levels over the last five years with $5.3 billion going into 905 deals, compared to $5.1 billion going into 920 deals in 2006. Despite the lack of growth, it still remained the largest single industry category for the year both in terms of deals and dollars, edging out Biotechnology for the top position.

The Clean Technology sector, which represented two of the five biggest deals of the year, experienced significant growth in 2007 with $2.2 billion invested in 202 deals. This investment level represents a 47 percent growth in dollars and a 58 percent growth in deal volume over 2006 when $1.5 billion was invested in 128 companies. Clean Technology crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation.

Internet-specific companies received $4.6 billion in 748 deals in 2007, an increase of 12 percent and eight percent, respectively, over 2006 when these companies received $4.1 billion in 691 deals. 'Internet-specific' is a discrete classification assigned to a company whose business model is fundamentally dependent on the Internet, regardless of the company's primary industry category. These companies accounted for 16 percent of all venture capital dollars in 2007, approximately the same percentage as in 2006.

The Media and Entertainment industry saw more venture capital dollars in 2007, with $1.9 billion going into 340 deals, compared to 2006 when $1.7 billion went into 318 deals. Other industries that saw increases in deals and dollars during the year include Business Products and Services, Financial Services, IT Services, and Retailing/Distribution.

Telecom companies saw a decrease in investment in 2007 with 290 deals receiving $2.1 billion dollars, a drop from the $2.6 billion in 301 deals they captured in 2006. Other industries that experienced declines in deals and dollars in 2007 include Healthcare Services, Semiconductors, and Electronics/Instrumentation.

Stage of Development

Investments into Later Stage companies increased substantially, both in terms of deals and dollars in 2007. Venture capitalists placed $12.2 billion in 1,168 Later Stage deals during the year, compared to $9.8 billion in 1,006 deals in 2006. They accounted for 31 percent of all deals in 2007, compared to 28 percent in 2006.

Funding for Seed Stage companies remained level in terms of dollars but increased significantly in deal volume in 2007 with $1.2 billion going into 415 deals, compared to $1.2 billion going into 342 deals in 2006. Early Stage investments experienced a significant increase in 2007 both in terms of deals and dollars, with $5.2 billion going into 995 deals, compared to $4.1 billion going into 923 deals in 2006. The percentage of total deals in Seed and Early Stage investments combined was 37 percent in 2007, up from 35 percent in 2006.

Expansion Stage investments decreased slightly in 2007 with $10.8 billion going into 1,235 deals, compared to 2006 when $11.5 billion went into 1,359 deals. Expansion Stage deals accounted for 32 percent of the total deals in 2007, compared to 37 percent in 2006.

First-Time Financings

First-time financings reached the highest levels since 2001, with 1,267 companies receiving $7.2 billion in venture capital in 2007. This marks an increase of eight percent in the number of companies entering the venture-financed arena for the first time in 2007 versus 2006.

Industries receiving the most dollars in first-time financings in 2007 were Software with 250 deals valued at $1.14 billion, followed by Industrial/Energy with 141 deals for $1.08 billion and Biotechnology with 134 deals for $982 million.

Seventy-one percent of first-time financings in 2007 were in the Seed/Early Stage of development, followed by Expansion Stage companies at 23 percent and Later Stage companies at seven percent.

International Investing

In 2007, U.S.-based venture capitalists invested $1.1 billion in 91 deals in India and $1.4 billion in 133 deals in China, representing all-time highs for U.S. investments in each country. These figures are reported separately and are not included in the aggregate totals above.

Note to the Editor

Information included in this release or related venture capital investment data should be cited in the following way: "The MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Financial" or "PwC/NVCA MoneyTree™ Report based on data from Thomson Financial." After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA or MoneyTree Report. Charts and tables displaying the data are sourced to "PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial." After the first reference, subsequent references may refer to PwC/NVCA MoneyTree Report, PwC/NVCA, MoneyTree Report or MoneyTree.

About the PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report

The MoneyTree™ Report measures cash-for-equity investments by the professional venture capital community in private emerging companies in the U.S. It is based on data provided by Thomson Financial. The survey includes the investment activity of professional venture capital firms with or without a U.S. office, SBICs, venture arms of corporations, institutions, investment banks and similar entities whose primary activity is financial investing. Where there are other participants such as angels, corporations, and governments in a qualified and verified financing round the entire amount of the round is included. Qualifying transactions include cash investments by these entities either directly or by participation in various forms of private placement. All recipient companies are private, and may have been newly created or spun-out of existing companies.

The survey excludes debt, buyouts, recapitalizations, secondary purchases, IPOs, investments in public companies such as PIPES (private investments in public entities), investments for which the proceeds are primarily intended for acquisition such as roll-ups, change of ownership, and other forms of private equity that do not involve cash such as services-in-kind and venture leasing.

Investee companies must be domiciled in one of the 50 U.S. states or DC even if substantial portions of their activities are outside the United States.

Data is primarily obtained from a quarterly survey of venture capital practitioners conducted by Thomson Financial. Information is augmented by other research techniques including other public and private sources. All data is subject to verification with the venture capital firms and/or the investee companies. Only professional independent venture capital firms, institutional venture capital groups, and recognized corporate venture capital groups are included in venture capital industry rankings.

MoneyTree Report results are available online at www.pwcmoneytree.com and www.nvca.org.

The National Venture Capital Association (NVCA) represents approximately 480 venture capital and private equity firms. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation. According to a 2007 Global Insight study, venture-backed companies accounted for 10.4 million jobs and $2.3 trillion in revenue in the U.S. in 2006. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.

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