US IT venture unvestments up 11% in Q2 2004

Companies in software and other IT sectors got $3 bln in venture funding in Q2, 11% more than in Q1 and more than any other industry, according to a survey by Ernst & Young and VentureOne. Software companies received $1.2 bln in venture-capital funding in Q2, tops among IT categories, according to the separate MoneyTree survey by PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association. Software companies attracted $250 mln in first-time investments in Q2 versus $185 mln for biotech companies. In the first half of the year, software outpaced biotechnology, attracting $2.2 bln in VC investment versus biotech’s $1.9 bln, according to the MoneyTree survey. Early-stage investments were $1.2 bln in Q2, a two-year high, according to the MoneyTree survey.

European venture investments up 21% in Q2 2004

European technology venture capital surged in Q2 2004, with 199 companies raising $1.25 bln, a 21% increase YTY. After a sharp drop in biotechnology and healthcare funding in Q1 2004, the sector bounced back strong in Q2 to score the largest share of the pie, with $581 mln, or 46% of all European funding, for the quarter. The software sector fell back to second place with $213 mln, or 17% of all capital. While the number of active investors dropped 9% to 300, the average deal size increased by 25% to $6.4 mln. The United Kingdom took in the most cash of any European country, with nearly 28%, or $348 mln. Tech investments in Germany surprised everyone, soaring to $269 mln – its highest levels since Q4 of 2001, and an impressive 75% hike over Q1 of 2004. France didn’t fare so well, only attracting $121 mln, a 38% decrease from the previous quarter.

$4 bln of venture money invested in software startups

Venture investment in software companies in Q1 2004 totaled more than $4 billion, which puts it on track to match the level reached in 1998, the year before the bubble started growing for the next three years, he said. Between 1999 and 2001, venture funding of software companies exceeded $38 billion. This dropped to a total of $9 billion for 2002-2003. Early this year companies seeking funding had average pre-money valuations of about $4 million for first-round funding, $8.3 million for second-round and $20 million for later-stage funding. Second-round and later-stage investments are averaging between $7.5 million and $8.5 million. First-round funding was up slightly from about $4.5 million to $5 million.

$18 bln of venture investments in 2003

Venture capital ended the year on an up note in Q4 2003 with investments totaling $4.9 billion in 679 companies according to the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey. This figure is up from $4.4 billion in the third quarter of 2003, and is the highest amount invested since the second quarter of 2002 when the total reached $6.0 billion. Investment in Life Sciences companies continued to outpace other industry sectors. For full year 2003, investments totaled $18.2 billion in 2,715 companies. The 15% decline from 2002’s $21.4 billion was small compared to decreases over the last three years indicating that venture capital is settling out at a comfortable, sustainable level. The relatively consistent levels of quarterly investing throughout 2003 further support this assessment.

Biotechnology’s momentum continued in the fourth quarter with $1.1 billion of investment. For the second consecutive quarter and only the second time in the past eight years, Biotechnology was the leading industry category, outpacing Software, which accounted for $978 million in the quarter. For full year 2003, the Life Sciences Sector (Biotechnology and Medical Devices, together) attracted $4.89 billion, or 27% of all venture capital. This represented the highest proportion directed to Life Sciences in the last 12 years. The largest single-industry category was Software, capturing $3.6 billion over the full year. That figure amounted to 20% of all investing, well in line with historical norms for the category. It was followed closely by Biotechnology at $3.4 billion. The other two major industry categories both slipped slightly in 2003. Telecommunications fell to $2.0 billion or 11% of all investing. Networking dropped to $1.7 billion or 9% of the total in 2003. At their historical peaks, Telecommunications accounted for as much as 17% of all venture capital, and Networking accounted for 14%.

Semiconductor investing held steady at $1.2 billion, or 6% of 2003 investing. The remaining industry categories accounted for less than 5% each.

Venture capital losses amounted to 17.8% in 2003

Venture capital funds nationwide declined, on average, by 17.8% during the year ending in September 2003, based on the latest data compiled by Thomson Venture Economics for the National Venture Capital industry. It marked the 11th consecutive quarter that venture capitalists have sustained a one-year loss, by far the worst streak in the industry’s history. The slump began shortly after the dot-com bust began to devastate the high-tech startups that venture capitalists financed in the late 1990s and 2000. But there are signs the worst is over. At the end of June, venture capital funds’ one-year losses averaged 27.4%.

VCs have $70 bln in cash ready for investments

VCs have plenty of money to play with – up to $70 billion in committed, but not yet invested, capital.

While some dealmakers were in retreat and teeing off at Pebble Beach, these VCs were earning their management fees. The most active investors in the first nine months of 2003:

New Enterprise Associates: 55 	Warburg Pincus: $237 mil
Austin Ventures: 37 	New Enterprise Associates: $169 mil
Venrock Associates: 36 	Austin Ventures: $141 mil
U.S. Venture Partners: 36 	MPM Capital: $135 mil
Intel Capital: 34 	Technology Crossover Ventures: $130 mil

Wireless companies receive $915M in 2Q venture capital

Venture capital activity in the wireless sector continued in the second quarter, providing encouragement for the industry?s financial health, according to Rutberg & Co.?s 2Q03 Wireless Update. During the second quarter, 144 wireless companies received $915 million in venture capital, down 15% from the first quarter but up 22% from the year-ago second quarter. Of those, 26 companies, or 18 percent, represented early-stage funding, indicating wireless companies continue to form. Investments were focused on 802.11, rich media, device management, data mobilization and messaging.