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CleanTech VC Investments on the Rise During 2008 While Life Sciences Lags

By Michael Rosen
February 9, 2009


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 takeover 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.

2008 wasn't the best of years for venture capital. According to National Venture
Capital Association (NVCA) and PriceWaterhouse Coopers' MoneyTree Report which
tracks deal flow from venture capital on a quarterly basis, U.S. VC's invested
$28.3 billion in 3,808 deals, or about $7.4 million/deal during 2008. This
volume represented the first decline of total investments since 2003: an 8%
decrease in dollars and a 4% decrease in deal volume versus 2007. The 4th
quarter of 2008 took a particularly sharp drop of 28% versus the prior quarter.

Although there was gloom in the overall VC landscape, one bright spot was the
CleanTech, a relative newcomer to the categories of investment. CleanTech
includes: alternative energy, pollution and recycling, power supplies, and
conservation.

U.S. Venture Capital Investments ($ Billions by Sector)

Sector2008 Investments

($ B)% Change Vs. 2007# of DealsAverage Deal Size ($ M)

Life Sciences*$8.0<15%>853$9.4

Software$4.9<10%>881$5.6

Internet$4.9-825$5.9

Clean Tech$4.1+52277$14.8

Media & Entertainment$2.0+3%407$4.9

IT Services$1.8+17%262$6.9

Telecommunications$1.7DeclineN/AN/A

Semiconductor$1.7DeclineN/AN/A

TOTAL$28.3<8%>3,808$7.4

Source: www.pwcmoneytree.com

*Life Sciences = Biotechnology and Medical Devices

A sea of red prevailed for many of the sectors, but surprisingly CleanTech was
not the only sector which reported gains in investment; two other sectors
reported gains. 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 PWCMoneyTree Report analyzes venture capital investment
is by stage of development of companies. It classifies companies into 4
different stages of company development and tracks the investment flows into
each of these development stages. Let's take a look at how these investments
traced during 2008.

U.S. Venture Capital Investment by Company Stage of Development - 2008

Company Development Stage2008 Investment ($B)% of Total% Change Vs. 2007#
of CompaniesAverage Company Funding ($M)

Seed Stage$1.55.3%+19%440$3.4

Early Stage$5.318.8%<4%>1,036$5.1

Later Stage$10.838.3%<13%>1,177$9.2

Expansion Stage$10.637.6%<9%>1,178$9.0

TOTAL$28.2100%<8%>3,831$7.36

Source: www.pwcmoneytreereport.com

Of note here is that the earliest level of funding, Seed Stage, was on the rise
during 2008, and that 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% of total funding, an important trend. Not only did Seed Stage rise so
dramatically, but also represented the highest percent of overall funding since 2000.

In the next article, we will try to look at the specifics of this VC funding on
the Midwest and other regions. VC funding for 2009, at this juncture, is
expected to decline versus 2008, as U.S. VC's 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.

 

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