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Clean Technology VC Investments on Rise During 008 While Life Sciences Lag


Midwest Business & Technology News
February 9, 2009


The mission of Yer Biotech Blues, which appears on
MidwestBusiness.com every other Monday, is to
provide insights into the Midwest and national
biotech scene as well as new developments in the biotech field.

Venture capital is the lifeblood of new companies in the U.S.

It has become more risk adverse in recent years
with angel capital beginning to take over its role
in getting early stage companies funded.

Nevertheless, the flow of venture capital monies
continues to be the primary measurement of how we
measure the growth of new companies in the U.S.
Itís clear that 2008 wasnít the best of years for
venture capital. According to the recent MoneyTree
report from the National Venture Capital
Association (NVCA) and PricewaterhouseCoopers,
U.S. VCs invested $28.3 billion in 3,808 deals or
about $7.4 million per deal during 2008. The
report tracks deal flow from venture capital on a
quarterly basis.

This volume represented the first decline of total
investments since 2003. It was an 8 percent
decrease in dollars and a 4 percent decrease in
deal volume versus 2007. The fourth quarter of
2008 took a particularly sharp drop of 28 percent
versus the prior quarter.

Though there was gloom in the overall VC
landscape, one bright spot was clean tech, which
is a relative newcomer to the categories of
investment. Clean tech includes alternative
energy, pollution and recycling, power supplies
and conservation.

While a sea of red prevailed for many of the
sectors, surprisingly clean tech was not the only
sector that reported gains in investment. Two
other sectors reported gains, too. Of note with
the clean tech deals is that the average deal size
was the largest of any sector. The decline in the
life sciences sector, however, was one of the most
dramatic.

Another way in which the MoneyTree report analyzes
venture capital investment is by the stage of
development of companies. It classifies companies
into four different stages of company development
and tracks the investment flows into each of these
development stages. Letís take a look at how these
investments traced during 2008.

Of note here is that the earliest level of funding
(seed stage) was on the rise during 2008.

The next level (early stage) declined but not
nearly as much as the later stages of funding.
Both seed and early stage represented some 24
percent of total funding. Thatís an important
trend. Not only did the seed stage rise so
dramatically but it also represented the highest
percent of overall funding since 2000.

In the next column, we will look at the specifics
of this VC funding on the Midwest and other
regions. VC funding for 2009 is currently expected
to decline versus 2008 as U.S. VCs are closely
monitoring their existing investments (for
follow-on financing) and being very circumspect on
new investments. The clean tech growth trend is
expected to continue for 2009. See you soon!

Michael S. Rosen is Senior Vice President, New
Business Development for the Science + Technology
Group at Forest City Enterprises, a NYSE-traded
real estate development company which develops and
builds bioscience parks across the U.S. Rosen is
also a founder and board member of the Illinois
Biotechnology Industry Organization.

 

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