AFTER NEARLY 3 YEARS OF STEADY GROWTH, U.S. VENTURE INVESTMENT
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AFTER NEARLY 3 YEARS OF STEADY GROWTH, U.S. VENTURE
INVESTMENT PULLS BACK 7% IN 1ST QUARTER TO $6.84 BILLION
Dow Jones VentureSource Finds Fewest Deals Since 2005; Funding for Health Care
Companies Falls While Info Services Companies Raise a Record $1.59 Billion
SAN FRANCISCO and NEW YORK (April 19, 2008)—Venture capital investment in U.S.
companies slipped 7% in the first quarter of 2008 compared to the same period last year to $6.84
billion, according to the Quarterly Venture Capital Report released today by Dow Jones
VentureSource (www.fis.dowjones.com), the venture industry’s premier data provider. The
report showed that deal count reached 603 deals for the quarter, down by 25 deals from the first
quarter last year and the lowest quarterly total since the first quarter of 2005.
Despite showing the first down quarter in nearly three years, the report gives no
indication that momentum within the venture capital market is slowing due to the slumping
“While we are watching closely to see if the slowdown in the overall economy will infect
the venture capital community, it’s simply too early to know for sure,” said Jessica Canning,
Director of Global Research for Dow Jones VentureSource. “The venture industry is usually
insulated from the immediate effects of an economic downturn. The first quarter may have been
a down quarter compared to last year, but $6.84 billion still represents a very healthy amount of
investment and there are some encouraging signs in areas like IT, energy, and business,
consumer and retail.”
Notable trends in the first quarter include a significant jump in deal activity and
investment in the information services sector, which includes the majority of today’s Web-
related companies, as well as a dramatic dip in life sciences investing. In particular, the
information service sector saw a record $1.59 billion invested in 170 deals, an increase of 104%
over amounts invested during the same time in 2007.
Life Sciences Lag Brings Down Overall Numbers
According to the data, health care was the only industry to record an overall decline in
investment during the first quarter of 2008 with $1.74 billion invested in 142 deals. This is 43%
less than the $3.06 billion invested in 175 deals during the first quarter last year. The majority of
the industry’s investment decline was contained in the biopharmaceuticals sector, which saw just
59 deals completed and $771 million invested in the quarter, a 59% drop-off from the $1.89
billion invested last year. Similarly, the medical devices sector recorded a 15% decline in
investments compared to a year ago with $866 million put into 67 deals.
“The health care industry may be the first to show signs that the broader public markets
may be affecting venture investment, as IPOs are normally the preferred exit for venture-backed
biotech companies,” said Ms. Canning. “However, health care is a highly cyclical market and our
analysis shows that the current drop in biotech funding is not due to an overall pullback but is
more a result of there simply being fewer large-sized deals. In fact, of the top 20 deals in the first
quarter, only two were health care deals. Over the last couple of years, health care has accounted
for closer to half of the top deals each quarter.”
The largest health care deal of the quarter belonged to TriVascular2 of Santa Clara,
Calif., which raised a $65 million first round to fund development of a device to treat abdominal
The report showed that the information technology (IT) industry recorded a strong
quarter with $3.88 billion invested in 373 deals, up 20% over the $3.24 billion put into 358 deals
in the first quarter last year. For the first time on record, the software sector did not account for
the most IT investment as it trailed behind information services. According to the data, software
posted a small 1% gain over the previous first quarter with $1.22 billion invested in 131 deals.
Highwinds Network Group of Winter Park. Fla., a provider of IP services and content
distribution platforms, closed one of the largest IT deals of the quarter with a $55 million first
The business/consumer/retail industry saw a 29% increase in investment as venture
capitalists put $677 million into 54 deals during the first quarter, according to the report. Most
notable were the 10 deals in the Web-heavy media/content/info sector, which attracted a record
$236 million in investments, more than what was put in this area in all of 2007. The largest deal
for the business/consumer/retail industry belonged to Brisbane, Calif.-based Glam Media, which
raised over $64 million for its women’s fashion Web site.
Companies developing “clean technologies” continue to attract steady interest from
investors, the report showed. Although “cleantech” cuts across all industries, the majority of
these companies can be found in the energy, agriculture, and advanced specialty chemicals and
materials segments. In total, companies in these sectors accounted for 34 deals and nearly $532
million worth of investment in the first quarter, which is on par with levels recorded over the
same period last year. The energy sector saw the bulk of investment with $368 million put into
22 deals during the first quarter.
Later-Stage Financings Increase; Deal Sizes Hold Steady
The quarterly report also identified the continuation of a recent trend—growing
investment in later-stage companies. Later-stage rounds accounted for 39% of all venture
financings in the first quarter of 2008, up from 32% in the same quarter last year. By
comparison, the proportion of seed and first rounds fell from 42% in the first quarter of 2007 to
35% in the most recent quarter. Second rounds held steady at roughly 22% of the deal total.
According to the data, the median deal size reached $7.1 million in the first quarter, up
from $7 million in the first quarter of 2007 but below last year’s record annual median of $7.5
million. By industry, healthcare financings had the largest medians at $9.3 million, followed by
business, consumer and retail at $8.75 million and IT financings at $6.5 million.
California once again dominated the venture capital activity in the first quarter,
representing 46% of the nation’s deal flow and 47% of the capital invested. The report showed
that by major regions:
• The San Francisco Bay Area remained a venture capital stronghold as investment
climbed 10% with $2.56 billion invested in 213 deals.
• After falling behind New England in the fourth quarter of 2007, Southern California
reclaimed the position of the second leading investment region with $672 million
invested in 63 deals. However, this is nearly 42% below the $1.17 billion invested
over the same period last year.
• The New York Metro region attracted $602 million in 52 completed deals. That is
more than double the $256 million invested the first quarter of 2007.
• New England was the fourth most-active investment region as investment fell 40%
in the first quarter with $577 million put into 72 deals.