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News and Information Article
Later Stage Dollars and First-Time Deals Hit Four-Year Highs
Wireless and New Internet-Specific Fundings Ramp Up
WASHINGTON, Jan. 24 // -- Venture capitalists matched 2004 by
investing $21.7 billion in 2,939 deals in 2005, according to the MoneyTree
Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National
Venture Capital Association. Full-year 2004s $21.6 billion marked the first
increase in venture capital investing after three years of consecutive
declines.
Funding for later stage companies rose markedly to $9.7 billion, while the
number of companies getting venture capital for the first time increased to
901, continuing a steady year-over-year rise. Both measures were four-year
highs. Some hot sectors began to emerge, though they still accounted for a
relatively small proportion of overall activity. The Wireless sub-sector of
Telecommunications jumped to a four-year high of $1.3 billion. And, first-time
investing in Internet-specific companies across all industry categories nearly
doubled to $840 million.
Investments in the fourth quarter of 2005 totaled $5.1 billion in 709
deals, down slightly from $5.4 billion in Q3 2005, but well in within the
range of investments levels seen over past 14 quarters.
Tracy Lefteroff, global managing partner of the venture capital practice
at PricewaterhouseCoopers, observed, "Solid levels of investing in traditional
industries are being complemented by renewed interest in promising, fast-
growing niches. Entrepreneurs in any area can look forward to a more receptive
-- though no less demanding -- market for their ideas."
Mark Heesen, president of the National Venture Capital Association, said,
"The next wave of creative destruction is upon us and its going to take the
consumer on an exciting ride. Just as venture capital dollars were heavily
directed at changing the way we work in the 1990s, many of the investments
made today will change the way we play and live our lives. Not only will we
witness tremendous strides in areas such as mobile computing in terms of
richer, faster, more ubiquitous content, but we will also see fundamental
breakthroughs in how we treat chronic and life threatening diseases. Venture
capital improves lives in many different ways and the investment pace we saw
in 2005 was right on target to continue doing just that."
"This positive environment is reinforced by the fact that VCs are doing
more new deals again. While continuing to manage risk by investing heavily in
late stage companies, the venture community is filling the pipeline again by
doing a growing number of first-time transactions. This is obviously good news
for entrepreneurs." said Mary Macdonald, vice-president of Thomson Financial.
Stage of Development and 12-Month Average Valuations
The continuing shift toward Later stage investing over the past five years
reflects venture capitalists ongoing support of existing portfolio companies
via additional follow-on rounds. Given the lackluster IPO market, portfolio
companies may be waiting longer to exit than in previous years. For full year
2005, Later stage funding rose 22% to $9.7 billion in 952 deals compared to
$8.0 billion in 2004. More notably, Later stage accounted for 45% of all
venture capital dollars, the highest proportion in the 11-year history of the
MoneyTree Survey. Commensurately, the average post-money valuation rose to
$81.9 million for the 12 months ending Q3 2005 compared to $73.0 million for
the period ending Q3 2004. (Note that valuation data lags investment data by
one quarter.)
Funding for Start-Up and Early stage companies slipped only slightly to
$4.1 billion in 922 deals compared to $4.4 billion in 2004 indicating
sustained interest in longer term investment horizons. Average post-money
valuations of Early stage companies slipped to $12.9 million for the 12 months
ending Q3 2005 compared to $15.4 million for the period ending Q3 2004.
As activity remained focused on opposite ends of the barbell, investing in
Expansion stage companies fell to its lowest point in nine years: $7.8 billion
in 1065 deals. In 2004, 1,195 Expansion stage deals amounted $9.3 billion.
Average post-money valuations dropped to $42.3 million versus $53.8 million
for the year-ago period.
Sector and Industry Analysis
The Life Sciences sector (Biotechnology and Medical Devices industries,
together) inched up to a five-year high in 2005 with $6.0 billion in 608 deals
compared to $5.8 billion in 589 deals in 2004. For the year, Life Sciences
accounted for 28% of all venture capital investments.
Software investments slipped 10% in 2005 to $4.7 billion in 840 deals.
However, Software easily held its position as the largest single industry
category with 22% of total dollars and 29% of all deals. The Networking
industry continued its slide, ending at $1.4 billion in 2005, an eight-year
low point.
Although the Telecommunications industry category has languished in recent
years, the Wireless sub-category has become a hot spot. For full year 2005,
152 wireless-related companies received $1.3 billion, a 24% increase over
2004s $1.1 billion. This increase pushed the Telecommunications category to a
three-year high of $2.1 billion in 2005.
Major industry categories that experienced increases in 2005 were IT
Services, Industrial/Energy and Financial Services. Other major categories
were either relatively flat or experienced modest decreases.
Internet-specific is a discrete classification assigned to a company
whose business model is fundamentally dependent on the Internet, regardless of
the companys primary industry category such as Software or
Telecommunications. Internet-specific investing has grown slowly over the last
three years with 2005 ending at $2.9 billion in 450 deals, up slightly from
$2.8 billion in 2004. Companies classified as Internet-specific represented
13% of all venture dollars and 15% of all deals in 2005.
First-Time Financings
New investments by venture capitalists hit a four-year high with 901
companies receiving their first round of institutional venture capital for a
total of $5.3 billion in 2005. Last year, 865 companies attracted $4.6
billion. The increase reflects venture capital firms appetite for fresh ideas
to balance existing investments.
The most notable jump in first-time financings was among Internet-specific
companies. A total of $840 million went to 161 companies, increases of 89% and
68%, respectively over 2004s $443 million in 96 companies. The boost
recognizes the potential of new companies across all standard industry
classifications and the viability of new business models that rely on the
Internet.
Among the standard industry classifications, the Software industry
attracted the most first-time activity with $1.2 billion going to 238
companies. Life Sciences followed with $1.0 billion going to 176 companies.
All figures were similar in 2004.
First-time Telecommunications investing reached a four-year high with 72
deals, directly reflecting the renewed interest in the wireless arena. Media &
Entertainment increased to 64 companies compared to 43 in 2004.
Industrial/Energy followed with 51 deals, roughly the same as 2004. First
sequence investing in other industries generally mirrored the pattern of
overall industry investing.
In terms of stage of company development, the most first-time financings
in 2005, 67% of all first-time deals, went to Start-Up and Early stage
companies. Expansion stage companies were 28% and Later stage 5%. All figures
were in line with recent historical norms.
About the PricewaterhouseCoopers/Thomson Venture Economics/National
Venture Capital Association MoneyTree(TM) Survey
The MoneyTree(TM) Survey measures cash-for-equity investments by the
professional venture capital community in private emerging companies in the
U.S. The survey includes the investment activity of professional venture
capital firms with or without a US 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 US 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. 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 Survey results are available online at http://www.pwcmoneytree.com,
http://www.ventureeconomics.com, and http://www.nvca.org.
The National Venture Capital Association (NVCA) represents approximately
475 venture capital and private equity firms. NVCAs 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
2004 Global Insight study, venture-backed companies accounted for 10.1 million
jobs and $1.8 trillion in revenue in the U.S. in 2003. 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 http://www.nvca.org.
The PricewaterhouseCoopers Private Equity & Venture Capital Practice is
part of the Global Technology Industry Group, http://www.pwcglobaltech.com. The group
is comprised of industry professionals who deliver a broad spectrum of
services to meet the needs of fast-growth technology start-ups and agile,
global giants in key industry segments: Networking & Computers, Software &
Internet, Semiconductors, Life Sciences and Private Equity & Venture Capital.
PricewaterhouseCoopers is a recognized leader in each industry segment with
services for technology clients in all stages of growth.
PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused assurance,
tax and advisory services to build public trust and enhance value for its
clients and their stakeholders. More than 130,000 people in 148 countries work
collaboratively using connected thinking to develop fresh perspectives and
practical advice.
"PricewaterhouseCoopers" refers to the network of member firms of
PricewaterhouseCoopers International Limited, each of which is a separate and
independent legal entity.
Thomson Venture Economics, a Thomson Financial company, is the foremost
information provider for equity professionals worldwide. Venture Economics
offers an unparalleled range of products from directories to conferences,
journals, newsletters, research reports, and the Venture Expert(TM) database.
For over 40 years, Venture Economics has been tracking the venture capital and
buyouts industry. Since 1961, it has been a recognized source for
comprehensive analysis of investment activity and performance of the private
equity industry. Venture Economics maintains long-standing relationships
within the private equity investment community, in-depth industry knowledge,
and proprietary research techniques. Private equity managers and institutional
investors alike consider Venture Economics information to be the industry
standard. For more information about Venture Economics, please visit
http://www.ventureeconomics.com.
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