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U.S. Venture Investments Up in Q3, Science Companies Mixed

Calculator keys (Jorge Franganillo/Flickr)Dow Jones VentureSource reports that venture capital (VC) investment in the U.S. rose in the third quarter of 2011 compared to 2010, including the number and size of deals and investment volume. Among science-based companies, medical device and energy companies gained in investment deals and volume. Among biotech and pharmaceutical companies, the number of deals increased, but total investment dollars dropped compared to the third quarter of 2010.

Dow Jones VentureSource — a database of investments from 67,000 venture-backed companies in North America, Europe, Israel, China, and India — says VCs made 765 deals in the third quarter of 2011, investing $8.4 billion in U.S. companies, an 8 percent increase in the number of deals and 29 percent gain in volume compared to the third quarter of 2010. The median dollar amount of third-quarter deals rose from $5 million in 2010 to $6 million in 2011.

Science-based companies by and large shared in the improved investment climate, with some exceptions. Energy and utility companies — nearly all of which are involved in renewable energy — raised $635 million for 33 deals in the third quarter, compared to $381 million and 23 deals in the same period in 2010.

Medical device companies raised $857 million in 68 deals in the third quarter, a 30 percent increase in volume and 15 percent jump in number of deals compared to 2010. For the first time since 1998, says VentureSource, investment volume for medical devices exceeded that for biopharmaceutical companies, which recorded a volume of $715 million in 78 deals.

The 78 third-quarter investments in biotech and pharmaceutical companies represents a 10 percent increase over the 71 deals in the third quarter of 2010. The $715 million raised in the third quarter, however, is a sharp decrease from the $865 million in the same period of 2010.

Company growth stage

VentureSource found considerably more early-stage investments across industries in the third quarter of 2011 than a year ago. Seed and first-round deals accounted for 42 percent of the number of deals during the third quarter, compared to 36 percent in 2010. The percent of investment volume in early-stage deals stayed about the same: 21 percent in the third quarter of 2011 and 22 percent in 2010.

Second-round deals dropped somewhat in the third quarter of 2011 (20%) compared to 2010 (23%), although the proportion of capital invested stayed about the same: 19 percent in 2011 compared to 18 percent in 2010. Likewise, later stage deals and investment stayed about the same in the third quarter of 2011 as in 2010: 37 percent of the deals and 58 percent of total capital raised in 2011, compared to 39 percent of the deals and 57 percent of the capital raised in 2010.

Deal stage may explain some of the differences between biopharmaceutical and medical device investments in the third quarter. Some 42 percent of the biopharmaceutical deals went to early-stage companies, compared to 26 percent for medical device enterprises.

Jessica Canning, research director for Dow Jones VentureSource, notes the emphasis on early-stage investments may bode well for biotech and pharmaceutical companies. “Although the biopharmaceuticals sector lost its long-held place as the leader of the health care industry,” says Canning, “early-stage investment was strong, showing that investors are building a pipeline.”

Among other sectors, medical IT, software, consumer Internet, and business/financial services companies showed investment increases in the third quarter. Computer hardware enterprises, which include semiconductor companies, declined.

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Photo: Jorge Franganillo/Flickr

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