Of the 17 industry sectors tracked by MoneyTree, 14 experienced an increase in the number of deals from Q1 2007. However, the dollar amount invested declined in 10 industry sectors, indicating lower average dollar rounds this quarter.
"Based upon what we've seen in the first half of 2007, we may be looking at a new 6-year high in VC investments," said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. "Venture capitalists have found no shortage of promising companies in which to invest, as indicated by the sharp uptick in the number of deals during the second quarter. Innovation is alive and well, and VCs are making sure these companies are provided with the opportunity to become the Fortune 500 powerhouses of tomorrow."
Stage of Development
Seed and Early stage investing had the strongest quarter since 2001 in both number of deals and dollars invested. Venture capitalists invested $1.6 billion into 378 deals in the second quarter compared to $1.3 billion into 289 deals in the first quarter of 2007. Seed/Early stage deals accounted for 39 percent of total deal volume in the second quarter compared to 34 percent in the first quarter.
Expansion stage deals also showed a notable increase in the number of deals but a decrease in dollars invested. Investment for the second quarter in Expansion stage deals was $2.4 billion in 303 deals, representing 31 percent of deal volume. This compares to the first quarter when $2.9 billion was invested in 287 Expansion stage deals, representing 34 percent of total deal volume.
Later stage deals held fairly steady in volume but decreased in terms of dollars in the second quarter with $3.1 billion going into 296 Later stage deals. This represented 30 percent of total investments. In the first quarter, $3.2 billion went into 269 Later stage deals, representing 32 percent of the volume.
Industry Analysis
The Software sector had its strongest quarter since 2001 with $1.5 billion going into 248 deals, regaining its position as the single largest industry sector for the quarter. In the previous three quarters, the Biotechnology sector represented the most dollars invested. Other industry sectors that saw increases in both dollars and deals include Consumer Products and Services, Networking & Equipment, Semiconductors, Industrial/Energy and Computers & Peripherals.
The Life Sciences sector (Biotechnology and Medical Devices combined) had another strong quarter with $2.2 billion going into 223 deals. Though down slightly in dollars from the first quarter, which was the highest quarterly dollar amount ever recorded for Life Sciences deals at $2.6 billion, the Life Sciences sector had the most active quarter in history in the second quarter, with the deal volume reaching an all-time high. Both Biotechnology and Medical Devices saw a decrease in dollars but an increase in deals for the quarter.
The Clean Tech sector, which crosses traditional MoneyTree sectors and comprises alternative energy, pollution and recycling, power supplies and conservation, saw $451 million going into 44 deals in the second quarter. This represented 38 percent increase in the number of deals and 46 percent increase in dollars, partially attributed to a $73 million investment in a solar energy company, also the largest deal of the quarter.
Internet-specific companies captured $897 million going into 160 deals in the second quarter, a marked decrease from the first quarter when $1.4 billion went into 177 deals. The decrease in Internet investing activity negates theories that a new "bubble" is forming. "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.
Media and Entertainment continued to see a decline in deal and dollar volume with $482 million going into 73 companies. This is the third consecutive quarter with volume declines in this sector. The Financial Services and Healthcare Services sectors also experienced quarterly declines in both deal and dollar volume in the second quarter.
First-Time Financings
The number of companies receiving venture capital funding for the first time was at the highest deal and dollar level since 2001. Venture capitalists put $1.8 billion into 340 first-time deals in the second quarter compared to $1.7 billion into 252 deals in the first quarter. Seed/Early stage companies received the bulk of first-time investments garnering 57 percent of the dollars and 72 percent of the deals.
Companies in Software, Medical Devices and Industrial/Energy received the highest level of first-time dollars. Other industries in which venture capitalists placed more bets this quarter were Biotechnology and Telecommunications.
The average first-time financing for the second quarter was $5.2 million compared to $6.7 million in the first quarter. This decrease in average rounds is consistent with venture capitalists investing fewer dollars into more deals.
International Investing
In the second quarter of 2007, U.S.-based venture capitalists invested $408 million into 34 deals in China representing the highest dollar amount invested since 2003. Also in the quarter, U.S. venture capitalists invested $119 million in 18 deals in India. These figures are reported separately and are not included in the aggregate totals above.
