Venture Capital Investment Up 10% Over Q3 and At Highest Levels Since the Dot.com and Tech Bust in 2000

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As early stage funding starts to become more fashionable, investors are starting to consider investments in younger and riskier companies. While biotech, medical devices, and software continue to get the bulk of the funding, http://www.capitalhunter.com has identified the wireless technology and alternative energy sectors as two industries that are starting to see increased VC investment.

Venture capital and private equity firms invested over $4.9 billion in 446 companies in the fourth quarter of 2005, according to Capital Hunter, a venture capital and private equity research company headquartered in San Diego, California. Funding was above Q4 2004 by approximately 3% and above Q3 2005 by approximately 7%. Total funding for the year was approximately 4% below 2004.

First round financings constituted the bulk of this quarter’s investment, as over 30% of all venture dollars invested this period were placed into such companies. In addition, the average deal size was just $10.62 million, the lowest such amount in over two years. Certain sectors had a large increase in investment, including wireless technology and alternative energy, which both saw significant investment this quarter. In addition, life science investment, biotechnology in particular, continued to be strong, comprising almost a third of this quarter’s dollars.

Early Stage Financings

Series A financings have been gaining ground over the past few years, as venture capitalists are starting (albeit slowly) to make riskier investments in early stage companies. However, the biggest reason Series A funding was up this quarter was due to the fact that investors made some large bets on several young biotechnology companies. Light Sciences Oncology, a Seattle-based company that is currently developing therapeutics to treat certain classes of untreatable tumors, raised two tranches of Series A financing, a $35 million tranch in October and a $32 million tranch in December. In addition, two other biotechnology companies raised large initial financings. Cerimon Pharmaceuticals, a biopharmaceutical company currently developing next-generation therapeutics targeted at autoimmune diseases, raised $70 million from MPM Capital, OrbiMed Advisors and Nomura Phase4 Ventures. Also, Alinea Pharmaceuticals, an early stage biopharmaceutical company currently developing new therapeutics for diabetes and other metabolic disorders, raised $45 million in mid-October from MPM Capital, SV Life Sciences and Flagship Ventures. There were another six biotechnology companies that raised in excess of $15 million in the fourth quarter this year. Other large Series A investments include Amp’d Mobile, a wireless communications provider focusing on young adults that closed on $50 million from MTV, and Clearpoint Metrics, a provider of software used by executives to monitor network security that closed on $41 million from JK&B Capital and Symantec.

Series B financing (expansion financing) and late stage financing also continued to be strong, constituting 26.7% and 20.4%, respectively, of this quarter’s funding. Significant financings in these rounds include Portola Pharmaceuticals, which closed on a $46 million round of Series B funding from a bevy of investors, including Advanced Technology Partners, Alta Partners, Abingworth Management, Frazier Healthcare Investors, MPM Capital, Prospect Ventures and Sutter Hill Ventures, and Cornice, a Longmont, Colorado-based provider of portable storage solutions for consumer electronic equipment, which closed on $75 million in late stage financing from VantagePoint Venture Partners, BlueRun Ventures, BA Venture Partners and Caisse de dépôt et placement du Québec.

Sector & Industry Analysis

Life science (biotechnology and medical device) investment continued to be strong, as nearly a third of all funding was placed into such companies. The largest fundings in this group include the aforementioned Light Sciences Oncology and Alinea Pharmaceuticals as well as Devax, an Irvine-based producer of bifurcated stents used to treat atherosclerotic disease in coronary bifurcations and left main coronary arteries which closed on $32 million in Series D financing from InterWest Partners, U.S. Venture Partners and the Bio-Star Private Equity Fund.

Software continued to be the largest recipient of venture dollars, receiving nearly a quarter of this quarter’s funding. Companies receiving major investments in the software sector include the aforementioned Clearpoint Metrics, Vibrant Media Holdings, which provides ad-targeting software to online publishers and closed on $25 million in Series B funding from ABS Capital Partners, and Perfect Commerce, a Kansas City-based provider of on-demand supplier relationship management software solutions to logistics related companies that clsoed on $30 million from PE firm Apax Partners and private investors.

While software and life sciences continued to dominate total venture capital investment, other sectors continued to see quarter-over-quarter growth as well. The most significant improvement occurred in the alternative energy sector. The U.S. Renewables Group, a company which buys and operates various renewable energy assets, raised $80 million in equity financing from Rustic Canyon Partners and various angel investors and Advent Solar, a manufacturer of photovoltaic cells and equipment for solar energy products, raised $30 million in Series C financing from Battery Ventures, EnerTech Capital partners, @Ventures, The New Mexico Co-Investment Partners and Angels with Attitude. Other sectors seeing growth this quarter include wireless technology, led by the aforementioned Amp’d Mobile and Internet-related services, including Shop.com, which raised $25 million in Series A financing from Oak Investment Partners.

Regional Analysis

California, including the Bay Area and Silicon Valley region, constituted approximately half of this quarter’s funding, with almost $2.3 billion going to such companies. New England, Washington and the Southeast also continued to receive strong investment. The percentage breakdown by region was largely unchanged from both last quarter and the fourth quarter of 2004.

About CapitalHunter.com

CapitalHunter.com is a financial information service company that collects and disseminates data on investors and their corresponding equity financings worldwide. Each week, companies that received private equity investment are profiled in a weekly report which include venture financings, private placements, secondary offerings, PIPE’s and IPO’s. Also available is access to over 30,000 other historic equity financings through the http://www.capitalhunter.com searchable database. For companies with a quality management team, a sound business model, an a compelling investment opportunity the current landscape provides a unique environment to fund capital needs. With http://www.capitalhunter.com at the center of the venture capital and private equity information flow, entrepreneurs using http://www.capitalhunter.com gain access to active investor profiles and potential introductions to capital sources.

To see if you are a candidate for funding submit your business proposal to http://www.capitalhunter.com.

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