The data showed that, for the year as a whole, venture capitalists put record amounts of capital to work with biopharmaceutical, medical device and energy-related companies while also ramping up investments in Web-related technologies.
"It's clear that U.S. venture capitalists are eager to back innovative technologies that will better our lives through improved health, lower energy costs and a cleaner environment," said Jessica Canning, Director of Global Research for Dow Jones VentureSource. "Undoubtedly driven by the favorable IPO and M&A markets, investors are also willing to support entrepreneurial companies longer with round sizes that are at the highest levels since the heady dot-com days."
Overall, the median round size in 2007 was $7.6 million, up from $7 million in 2006 and the highest annual median since 2000, according to the report. For the third year in a row, seed- and first-round deals accounted for the largest slice of deal activity with 975 deals, or 38% of the total deal count. Later stage financings, however, attracted far and away the most capital with some $14.3 billion (roughly 50% of all capital invested) put into 900 rounds in 2007.
"While venture investors continued to back emerging start-ups in 2007, they were clearly focusing their sights on navigating later-stage portfolio companies toward liquidity," said Ms. Canning. "The improved prospects for taking venture-backed companies public or complete a merger or acquisition are having an impact. In 2007, the median amount invested in later-stage rounds reached $11.8 million, the highest in more than six years."
A Big Year for Energy, Health Care & Web Companies
By industry, investments in energy, environmental and advanced specialty chemicals and materials companies - most of which fit under the umbrella of "clean technology" - saw the most significant growth in deal flow and investment in 2007. The report found that the deal count for these companies reached 187 in 2007, up from 124 in 2006, and investment grew 67% to $2.5 billion. The median round size for a deal in this space was $7 million in 2007, unchanged from last year. One of the largest deals of the fourth quarter of 2007 belonged to Palo Alto, Calif., energy conservation company Project Better Place, which raised a $200 million first round.
Also seeing significant growth as a whole was the health care industry, which recorded a new annual investment record with nearly $10 billion put into 671 deals, according to the report. That marks a 17% increase over the $8.5 billion invested in 662 health care deals in 2006. Most notable was that the overall median deal size for a health care company grew to a record $10 million in 2007, up 33% from $7.5 million in 2006. The largest health care deal of fourth quarter was the $62.5 million later round for Cogentus Pharmaceuticals of Menlo Park, Calif.
Overall, the information technology (IT) industry posted a modest 2% gain in investments over 2006, with $14.8 billion invested in 1,530 deals, seven fewer than last year. Within IT, the notable story of 2007 was the 44% surge in investments in the information services segment, which includes most of today's Web-based innovations. Venture capitalists put
$3.7 billion into 479 deals in this space. The data showed that, while nowhere near the nosebleed records set in 2000, this is the most investment in this area since that time. The median amount invested in an IT deal remained unchanged from 2006 at $7 million. One of the largest-and most famous-deals in this space was a $60 million follow-on round raised by Palo Alto, Calif., social network Facebook.
While its counterparts saw big gains in 2007, the business, consumer and retail sector saw a nearly 20% decline in investments from 2006. Investors put roughly $2.6 billion to work in 260 deals in this area, down from $3.2 billion invested in 293 deals last year.
Regional Perspectives
According to the report, California was once again the top destination for venture capital investment in 2007, accounting for 42% of all deals with 1,112 and 47% of all capital invested with just under $14 billion. The San Francisco Bay Area attracted the bulk of the state's venture capital investment with 818 deals garnering $9.9 billion, 3% more than 2006. For the fourth year in row, Southern California saw sizeable investment growth with investors putting $3.8 billion to work in 272 deals. That's a 12% growth in investment for the region over 2006.
In other regions, the data showed that:
- The New York metropolitan region saw a slight increase in deals with 204, but capital investment fell for the second year in a row, dropping 9% to $2.1 billion.
- Washington State posted increases in both deal flow and investment with 111 rounds and roughly $1.4 billion invested in 2007. This was a 27% increase in capital invested over 2006 and the fifth straight year of investment growth.
- Both the Potomac region and Texas saw deals and investments dip in 2007. Investments in Potomac-area companies fell 15% to $982 million in 99 deals while Texas saw investments slide 7% to $1.1 billion in 95 deals.
