The Venture Capital industry, like other financial service industries was hit hard during the “Great Recession”. This past year marked the lowest level of investment in over 10-years. We haven’t seen levels this low since 1997. This past year represented a 37% decrease in terms of dollars invested and a 30% decrease in deal volume from 2008. It was the second year in a row of deal and dollar declines. I could focus a lot of time on the downward trending figures in the past 24 months, but there is some good news and I would prefer to focus on that.
In looking at Thomson Reuters data, which was reported on by Money Tree, PriceWaterhouseCoopers and the National Venture Capital Association, the fourth quarter of 2009 had some bright spots. Seed Stage companies receiving investments increased by 2% in terms of dollars invested in the fourth quarter. The number of Early Stage entities receiving investment increased by 32% and 26% in terms of dollars invested. Expansion Stage companies receiving investment increased by 19% and the number of Late Stage entities receiving investment increased by 5%. Now some of these segments saw the dollar amount invested decline, but the number of entities receiving investment is on the rise.
The Biotechnology Industry became the largest investment sector in the fourth quarter of 2009 with $1.0 billion being invested in 108 deals. This is a 10% increase in terms of number of deals. Software investing increased in the fourth quarter with $959 million going to 177 companies. It was the largest segment in terms of deals and the second largest in terms of dollars invested for the quarter. Internet specific entities saw an increase in investment in the fourth quarter with a 20% rise in the number of deals and a 14% rise in the amount of dollars invested.
It’s too early to say if the fourth quarter of 2009 was the start of a trend and the third quarter marked the bottom of the trough, but the statistics are worth noting. Raising capital should be a difficult process, (not all ideas and management teams are equivalent and capital is limited), but the process over the past 24 months has been more than difficult—it’s been close to impossible. I’m hopeful that 2010 will be a better year for both those seeking investment and those looking to invest. Nothing could be worse to our long-term well being than stifling our innovators and entrepreneurs with a lack of funding.
