Q3 VC Investment On Par With Last Quarter

October 27, 2003 (PLANSPONSOR.com) - Keeping pace with the second quarter's inflow, $4 billion flowed into venture capital deals in the third quarter.

The aggregate dollar amount remained on par with the previous quarter’s totals despite a decrease in the number of deals to 443 from 464.   Helping out this quarter’s figures were higher investment levels in both health care and products and services sustained in the dollar amount invested in the quarter , according to Ernst & Young and VentureOne’s joint US venture capital survey.

Further, signs of a continued recovery in the venture capital market were promulgated by a several factors related to liquidity:

  • a rise in completed Initial Public Offerings (IPO)
  • IPO registrations
  • median amount paid in merger & acquisition (M&A) transactions.

Where the first half of the year saw only two v enture-backed IPOs , the third quarter alone saw six venture-backed companies completing IPOs this quarter, raising $429 million in the public markets, an amount not reached since 2Q02.   Additionally, 19 venture-backed companies registered for IPOs this quarter, the largest number of registrations since 2000.

M&A activity held steady with 74 startups being acquired, a slight increase from 71 last quarter . The median value of M&A transactions also increased significantly throughout this year, from $10 million in 1Q 03 to $22.7 million in 2Q 03 and currently reaching $26.6 million this quarter.

“The increased number of IPOs coupled with higher value M&A activity could be the start of a clearer path to successful exits, resulting in an increased willingness to provide capital to early stage companies,” Mark Sinclair, Ernst & Young’s Southwest Area Venture Capital Advisory Group Leader noted.

“Healthy” Start Ups

Health care continued to command a significant share of the total venture capital investment, now receiving 33% of the total 2003 venture capital investment, up from 27% in all of 2002.   The median amount invested in health-care companies reached   $8.6 million in the third quarter and $15 million for second round financings.  

Propping up the sector was the rise in investment in the biopharmaceutical sector ($899 million) and in particular the biotechnology category, taking in a little less than half of the aggregate ($434 million).   In addition, the quarter’s largest deal was a health-care investment – $115 million in Liberty Corner, New Jersey-based Reliant Pharmaceuticals.  

Also, Series B financing brought in a significant amount of financing for the quarter.    Second-round medians rose to $8.50 million from $6.75 million in the previous quarter.   Overall, 28% of venture capital deals were aimed at seed and first round deals in the quarter, as later stage deals accounted for 39% of the capital flow.

Investmentfigures included are based on aggregate findings of VentureOne’s proprietary US research. This data was collected by surveying professional venture capital firms, through interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors.