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News
U.S. Venture Capital Investments Increase in Q4 2003
Full apportionment credit is hereby given to VentureOne.
According to VentureOne, a leading information provider to the venture capital industry, Venture capital investment in the fourth quarter of 2003 showed renewed signs of growth. With $4.5 billion invested in 496 financing rounds, these are the highest quarterly numbers in more than a year, according to the VentureOne/Ernst & Young Venture Capital Report.
The quarter also saw a significant increase in early stage financings. In 4Q03, seed and first round financings accounted for more than 30% of total deals, the first time this has occurred in more than a year. The amount of dollars invested also increased in early-stage financing rounds, by 35% for seed and first rounds combined. In addition, there were 123 second round financings, the highest level since 3Q02.
"VC investment is spurred by strength in the capital markets because the path to a successful exit becomes more demonstrable. The fourth quarter saw 13 venture-backed IPOs, the most since the fourth quarter of 2000, and the value of M&A transactions also increased significantly. In addition, 31% of the information technology deals were for seed and first round, the majority of those in software, showing that investments that promise capital efficiency are still attractive," said Gil Forer, global leader of the Ernst & Young Venture Capital Advisory Group. "We are optimistic that continuing strength in the capital markets will translate into increased early stage investment in 2004."
Software continues to be the most active segment with 145 financing rounds completed in the fourth quarter, a 13% increase. Biopharmaceuticals was the second most active segment with 73 deals, up from 40 in the third quarter. Biopharmaceuticals also received the most investment among all industry segments for the second quarter in a row. Of the 20 largest deals in the quarter, 12 of them were in this segment. The two largest: a $56 million investment in Critical Therapeutics (Cambridge, MA), a developer of critical care medicines; and a $55 million investment in CoTherix (Belmont, CA), a pulmonary disease pharmaceuticals developer.
For the year as a whole, U.S. venture capital investment slipped to $16.9 billion in 1,884 financings, a drop of 20% and 15% respectively. But the robust activity in the fourth quarter brought the year to a close in a positive direction, commented John Gabbert, Vice President of Worldwide Research at VentureOne.
"There were several indicators of renewed strength this year. Venture-backed biopharmaceutical companies ended the year with $3.4 billion in investment, which is 6% more than 2002. That included two quarters in which the segment received more than $1 billion. Software was the only other segment that had a $1 billion quarter this year. Semiconductors and consumer and business product companies also ended the year with modest increases in both investments and financing rounds in 2003," Gabbert said. "The overall progression in the fourth quarter, along with the recent increases in the liquidity market and the positive outlook being issued for fundraising, shows that venture capital activity appears to be trending upward."
Activity in the San Francisco Bay Area, which is often a bellwether for the venture capital industry, also reported a strong fourth quarter. More than $1 billion was invested in information technology companies in the region, in 108 financing rounds. Healthcare was also particularly strong with $528 million invested for the quarter, and $1.6 billion invested for the year.
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