Contacts:
Jeanne Metzger,
NVCA, 703-524-2549 ext. 16, [email protected]
Laura Beck, Porter
Novelli for PricewaterhouseCoopers, 512-241-2231, [email protected]
Jesse
Reyes, Venture Economics, 973-645-9734, [email protected]
Venture
Capital Investment Increases in Q4 for First Time Since Mid-2000
2001
Finishes as 3rd Strongest Year for Venture Capital
Software
& Biotechnology Lead The Way
Washington, D.C.,
February 4, 2002 – Venture capitalists invested $7.1 billion in entrepreneurial
enterprises in the fourth quarter of 2001, reversing a downward trend that began
in the third quarter of 2000, according to the PricewaterhouseCoopers/Venture
Economics/National Venture Capital Association MoneyTree Survey. These fourth
quarter numbers suggest that the economic and psychological climate for venture
investing is beginning to improve after 18 months of steady decline. The survey
also showed that despite an extremely difficult economic environment, $36.5
billion was invested in the twelve months of 2001, ranking the year as the venture
capital industry’s third best in terms of total dollars invested.
“The free-fall
is over and we’ve landed safely on higher ground,” said Tracy Lefteroff, global
managing partner of the venture capital practice of PricewaterhouseCoopers.
“The uptick in dollars and deals in the fourth quarter occurred despite economic
disruption and uncertainty. And, calendar year 2001 investments were nearly
double 1998, which was the last pre-bubble year. The stars have realigned along
historical norms.”
INDUSTRY ANALYSIS
The two sectors
that showed the most strength in Q4 2001 were software and biotechnology. The
life sciences categories (biotechnology, medical devices and equipment, and
healthcare services) continued to capture a greater percentage of overall investment
than seen in recent years, attracting 18.5 percent of total investment, compared
with only 7.97 percent in Q4 2000 and 6.42 percent in Q4 1999. The biotechnology
sector, itself, increased to 14.0 percent in Q4 2001 from 10.1 percent in Q3
2001. The software sector increased to 22.5 percent of total investment in Q4
2001 from 16.9 percent in Q3 2001.
When looking at
trends on an annual basis, biotechnology saw the largest gains in terms of percentage
of investment, rising to 8.2 percent in 2001 from 3.5 percent in 2000. The increase
can be attributed to the wide range of opportunities created by the integration
of technology in the drug development process and continuing advances in the
genomics and proteomics fields. Conversely, retailing and distribution saw the
biggest decrease in terms of a percentage basis, falling to 10.0 percent in
2001 from 18.4 percent in 2000. This drop reflects the fallout that occurred
in the e-retailing sector during the past 18 months. The software sector remained
strong throughout 2000 and 2001, while several sectors held their own despite
considerable uncertainty, including telecommunications and networking and equipment.
“VCs have traditionally
cut their teeth on IT investments. Investment in 2001 continues this trend in
that at least 60 percent of their initial investments were in IT investments.
Eighteen months ago venture investors were putting a significant portion of
their initial investments into web retailing and e-commerce; now VCs have all
but abandoned those sectors. More and more venture capitalists are looking toward
the life sciences sectors. What is really telling as to the industry’s new view
of the world is that these initial investments are now averaging $7 million
per company rather than the $10 million of the typical mid-2000 deal. This may
be a reflection of valuation reality or simply a way to lower the risk exposure.
In any event, VCs are more cautious,” commented Jesse Reyes, Vice President,
Venture Economics.
STAGE OF COMPANY
DEVELOPMENT
Venture capitalists
continue to support existing portfolio companies but haven’t abandoned early
stage enterprises. In Q4, investments made in expansion stage companies increased
to 64.3 percent of total dollars invested compared to 53.9 percent in Q3. Investments
in early stage companies fell to 15.6 percent of total dollars invested and
23 percent of total deals compared to 21.7 percent of dollars invested and 27
percent of the number of deals in Q3. These trends can be attributed to the
continued effort among venture capitalists to support their existing portfolio
companies while exit opportunities have been limited. However, when looking
at only first round financings, 48.2 percent went to early stage companies in
Q4, which historical data shows as a typical level.
For the year, 2001
showed a higher than average percentage of first-time financings going to early
stage companies, rising to 62.1 percent from 55.3 percent in 2000. This clearly
shows that venture capitalists continue to believe that companies in their earliest
stages of development present the greatest possibilities for an extraordinary
return on investment. When looking at all rounds of investment, there was an
increase in expansion and later stage financings while investment in early stage
companies decreased.
“We are beginning
to see a shift in how venture capitalists are spending their time. During much
of the past 18 months, venture capitalists have spent the majority of their
time working closely with their existing portfolio companies, leaving less time
to make investments in new companies. By the close of the 4th quarter, the focus
on portfolio companies was beginning to return to new investments,” commented
Mark G. Heesen, president of the National Venture Capital Association. “During
the past year, venture capitalists demonstrated a great deal of tenacity, working
side by side with entrepreneurs to build strong companies at a time when exit
strategies were very limited. These efforts will serve new businesses well as
the economy begins to recover.”
Note to the
Editor
When referencing
information included in this release or other venture capital investment information
produced by the three MoneyTree Alliance partners, the information should be
cited in the following way: PricewaterhouseCoopers/Venture Economics/National
Venture Capital Association MoneyTree Survey. After the first reference, subsequent
references may refer to PwC/VE/NVCA MoneyTree Survey, PwC/VE/NVCA or MoneyTree
Survey. Charts and tables displaying the data are sourced to PricewaterhouseCoopers/Thomson
Venture Economics/National Venture Capital Association MoneyTree Survey. After
the first reference, subsequent references may refer to PwC/VE/NVCA MoneyTree
Survey, PwC/VE/NVCA or MoneyTree Survey.
About the PricewaterhouseCoopers/Thomson
Venture Economics/National Venture Capital Association Money Tree Survey
The MoneyTree
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 www.pwcmoneytree.com,
www.ventureeconomics.com, and www.nvca.org.
The National
Venture Capital Association (NVCA) represents over 450 venture capital and
private equity organizations. NVCA’s mission is to foster the understanding
of the importance of venture capital to the vitality of the U.S. and global
economies, to stimulate the flow of equity capital to emerging growth companies
by representing the public policy interests of the venture capital and private
equity communities at all levels of government, to maintain high professional
standards, facilitate networking opportunities and to provide research data
and professional development for its members.
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who deliver a broad spectrum of services to meet the needs of fast-growth technology
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Software & Internet, Semiconductors, Life Sciences and Private Equity & Venture
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