Biotech leads record venture quarter

The first quarter of 2007 saw the highest level of VC investment in the US since 2001, and the increase was largely driven by life sciences. Dave Keating reports.

A report issued today by the National Venture Capital Association and PricewaterhouseCoopers had good news for venture capitalists and small businesses, particularly those in the life sciences sector. The data shows that the first three months of this year saw $7.1 billion (€5.2 billion) invested by VCs into 778 deals, the highest quarterly amount since Q4 2001.

The amount is an 11 percent increase from the $6.3 billion VCs invested during the first quarter last year. Interestingly, deal volume actually declined in the quarter compared to Q6 2006, indicating a willingness by VCs to put more money into each round.

Mark Heesen, NVCA

The increase in VC investment overall was partly driven by the improving IPO market. According to Renaissance Capital’s, 53 IPOs were completed during the first quarter, up from 43 at the same time last year. Those offerings raised $9.8 billion, a ten percent increase from Q1 last year.

Perhaps the most interesting aspect of the results however was the phenomenal appetite VCs showed for biotech companies during the quarter. Biotech ranked as the number one industry for investment, while deals for companies making medical devices reached a record $1.08 billion with 96 deals, a 60 percent increase from the fourth quarter of 2006. The life sciences sector received 36 percent of VC investment for the quarter overall, also an all-time high.

“The life sciences sector is receiving a lot of attention right now but it is an industry that is indeed scalable,” NVCA president Mark Heesen said. “Biotech and medical device companies require a substantial amount of capital to get through the regulatory process and the VC industry is responding to this demand.”

The growing interest in the life sciences sector shows investors are confident that this is an area with long-term sustainability. The combination of rapid advances in the area of genomics and medical computing and the future healthcare needs of an ageing baby boomer population mean that not only is there a strong need in this area, but there is also a customer base that is able to pay high prices for their health.

Some of the biggest biotech and healthcare investments for the quarter were a $110 million investment in San Diego-based CardioNet, which offers real-time monitoring of ambulatory cardiac patients and a $70 million investment in Cambridge, Massachusetts-based Targanta Therapeutics, which manufactures biological products.

Other winners in the quarter were internet companies, which captured $1.3 billion in 167 deals, a 31 percent increase in dollars over Q4 2006 and the highest quarterly level in five years. IT services, computer/peripherals, retailing/distribution and networking and equipment also saw increases. Software investments fell 10 percent from Q1 of 2006 but still had the highest deal level of all industries. It was also the second largest industry sector by dollar value.

Investments in later stage companies also increased significantly, with $3 billion going into 245 deals, the highest dollar level in over six years.