Venture capital investment statistics for Q4 2005

The VentureOne/Ernst & Young LLP Quarterly Venture Capital Report for Q4 registered a sharp decline (-9.9% vs. -1.42% last quarter) in the amount of money invested from Q3, but a very sharp rise (+14.0% vs. +16.40% last quarter) from Q4 a year ago in equity investment in U.S.-based companies who have received at least one round of venture funding from a surveyed professional venture capital firm.

This was a mixed report.

Venture investment for 2005 was +2.2% higher than the previous year. The total dollars invested in 2005 amounted to $22.1 billion, the highest amount since 2001 ($36.2 billion), and higher than 1998 ($17.9 billion). Unfortunately, 2005 was only slightly higher than 2002 ($22.0 billion) and it will probably take at least a couple of years to exceed the 2001 level.

Please note that these numbers don't include either "angel" investments or "buyouts". The latter dwarfs venture investment and had its best year ever in 2005.

Information technology (IT) continues to get the lion share of investment (51%) compared to distant second healthcare (36%). There was a very sharp decline (-16.7%) in the amount invested in information technology companies since last quarter, and a sharp decline (-10.9%) compared to a year ago.  Computer software continues to be the largest sub-sector, with 23.1% of the money invested in Q4 and 42.7% of the IT money invested in Q4, and fell -5.6% from Q3 and fell -11.7% from a year ago.

The bottom line is that a healthy amount of money is being invested in new ventures, but it's not what could be called a real "boom".

Later stage deals received 49% of the money and first stage deals received only 22% of the money.

The ten largest deals were:

• Health Dialog ($171 million), provider of care management services, including disease management
• ORBCOMM ($110 million), provider of wireless telecommunications services
• Cornice ($75 million), provider of compact, high-capacity storage for pocket-able consumer electronic devices
• Perlegen Sciences ($50 million), developer of novel potential drug targets and markers which predict drug response using a method for rapidly analyzing and comparing entire genomes
• Raven Biotechnologies ($48.3 million), developer of monoclonal antibodies (MAb) therapeutics for treating cancer
• Portola Pharmaceuticals ($46 million), developer of therapeutics for the prevention and treatment of cardiovascular disease
• Small Bone Innovations ($42.2 million), provider of orthopedic products and technologies to treat trauma and diseases in small bones and joints
• Nanosys ($41.5 million), developer of nanotechnology-enabled systems based on a platform technology incorporating high performance and highly integrated inorganic semiconductor nanostructures
• Barracuda Networks ($40 million), provider of enterprise-class spam and spyware firewall solutions for comprehensive email protection
• SavaJe Technologies ($40 million), developer of Java-based operating system for wireless devices, with an emphasis on mobile phones.

 Note the dearth of software companies on that list, since the actual amount needed to fund a software business (especially in the first round) is frequently relatively small.

The top ten states for amount invested were:

• California at 45.32% of the total amount invested
• Massachusetts at 14.74%
• Texas at 4.05%
• New York at 3.36%
• Virginia at 3.28%
• Maryland at 3.25%
• Washington at 2.79%
• Colorado at 2.63%
• Georgia at 2.24%
• New Jersey at 2.00%.

The survey data was obtained from professional venture capital firms that have invested in U.S.-based early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors.

Please note that there are companies receiving investments who are operating in so-called stealth mode, and don't show up in publicly-available statistics, but it is believed that such investments represent a small fraction of the total investments.

-- Jack Krupansky