Industry Statistics Update PDF Print E-mail
Tuesday, May 12 2009

Data Shows Imbalances in the Ecosystem

Despite the widespread turmoil in the US and global economies, the venture capital industry is very much open for business. While a renewed US government commitment to basic R&D is welcome and encouraging, and we are seeing overall strength in the clean technology and life sciences sectors, these are challenging times. The industry is faced with conserving capital at portfolio companies while working to create exits for the most mature portfolio companies.

Overall, industry statistics show that fundraising and investment levels stayed at consistent post-bubble run rates through 3Q 2008. Fourth quarter showed a slow down. First quarter of 2009 showed dramatic slowing as LPs struggled to rebalance their investments, and GPs attempted to sort out what was ahead. While venture portfolios contain record numbers of later stage companies, the industry did fund over 1,100 companies for the first time in 2008.

IPO Draught Continues with Few Signs of Better Times in the Near Term

The lack of initial public offerings for venture backed companies has garnered considerable attention. IPOs are generally the most successful form of exit for the venture firms and their investors. Funds raised through the IPO process are distributed to LP investors and then are generally recycled by the LPs back into future venture funds. This ecosystem has stopped working. In 2008, there were a total of 6 venture backed IPOs. There were no IPOs in Q1 2009. As of early May, there was at least one venture-backed IPO in Q2 2009. Having no IPOs in Q2 2008, Q4 2008, and Q1 2009 is the first, second, and third occurrences of that since the 1970s.

To put the recent IPO drought in perspective, assuming 14% of venture backed companies go public and 1,100+ come into the system each year, we would expect 150+ IPOs each year.

Venture-Backed Liquidity Events by Year/Quarter, 2002-1Q2009
Quarter/Year
Total  M&A Deals
M&A Deals with Disclosed Values
*Total Disclosed M&A Value ($M)
*Average M&A Deal Size   ($M)
**Number of IPO's
 Total Offer  Amount ($M)
Average IPO Offer Amount ($M)
2002
319
154
7,586.7
49.3
22
2,109.1
95.9
2003
284
119
7,460.1
62.7
29
2,022.7
69.8
2004
346
187
15,919.6
85.1
94
11,378.0
121.0
2005-1
81
45
4,351.9
96.7
10
720.7
72.1
2005-2
81
34
4,725.0
139.0
10
714.1
71.4
2005-3
102
48
5,739.5
119.6
19
1,458.1
76.7
2005-4
87
39
2,594.0
66.5
18
1,592.1
88.5
2005
351
166
17,410.6
104.9
57
4,485.0
78.7
2006-1
107
52
5,607.5
107.8
10
540.8
54.1
2006-2
106
40
4,018.5
100.5
19
2,011.0
105.8
2006-3
94
42
3,450.8
82.2
8
934.2
116.8
2006-4
62
26
5,616.8
216.0
20
1,631.1
81.6
2006
369
160
18,693.6
116.8
57
5,117.1
89.8
2007-1
85
29
4,540.3
156.6
18
2,190.6
121.7
2007-2
88
37
4,002.3
108.2
25
4,146.8
165.9
2007-3
107
54
11,265.4
208.6
12
945.2
78.8
2007-4
93
47
9,743.8
207.3
31
3,043.8
98.2
2007
373
167
29,551.9
177.0
86
10,326.3
120.1
2008-1
106
40
4,543.2
113.6
5
282.7
56.6
2008-2
84
26
3,293.4
126.7
0
0.0
0.0
2008-3
86
32
3,080.2
96.3
1
187.5
187.5
2008-4
61
17
2,385.9
140.3
0
0.0
0.0
2008
337
115
13,302.7
115.7
6
470.2
78.4
2009-1
56
13
645.3
49.6
0
0.0
0.0
2009
56
13
645.3
49.6
0
0.0
0.0

Thomson Reuters & National Venture Capital Association
*Only accounts for deals with disclosed values
**Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of company location.

M&A Activity Also Slows - Strong Acquisition Valuations Become Scarce

Unfortunately, acquisition exits are not faring much better. There were only 56

acquisitions in Q1 2009, which is far below the 300+ annual run rate for much of the post-bubble period. Based on those deals with disclosed prices, those acquisitions that did take place were small. Less than $700 million in proceeds were realized in the first quarter - a small fraction of traditional levels.

Comparison of Acquisition Prices Paid and Total Venture Invested
Relationship between transaction value and investment
Q1 2008 M&A Deals
Q1 2009 M&A Deals
Deals where transaction value is less than the total amount of venture investment
10
7
Deals where transaction value is 1x to 4x total venture investment
9
3
Deals where transaction value is 4x to 10x total venture investment
11
3
Deals where transaction value is greater than 10x total amount of venture investment
5
0
Total
35
13

Source: Thomson Reuters & National Venture Capital Association
* Disclosed deals that do not have a disclosed total investment amount are not included.

A closer look at the acquisition exits where we have data on both total venture investment and the purchase price shows that those deals done were not blockbusters. For example, over half of the companies sold in Q1 2009 were at an amount less than the total venture investment. This compares to less than 1/3 of them a year ago. There were no reported deals in Q1 2009 where the sale amount exceeded 10x the total venture investment.

What's Happening in Investment?

As a result of a weak fourth quarter, venture investment in 2008 fell from 2007 levels but it remained above 2006 levels. Activity fell more than 50% in Q1 of 2009. Nearly a third of venture deals were into later stage companies. The industry has never seen levels this high. With exits far too scarce, many promising companies have arrived at the later stage maturity unable to move on. Reports from the field are that this historically high number of later stage companies is preventing venture capitalists from turning attention toward the next crop of companies. The statistics bear this out. While the percent of deals going to seed and early stage portfolio companies is near post-bubble highs, it is far below the level seen in the mid-1990s.

Venture Capital Investment 1995 to 1Q2009

Year

$M Invested

% of Deals in Start-Up Seed and Early Stage Companies

% of Deals in Later Stage Companies

1995

$ 7,691.4

51.0%

11.2%

1996

$ 10,958.5

49.1%

11.3%

1997

$ 14,484.8

44.8%

10.6%

1998

$ 20,426.6

45.7%

11.3%

1999

$ 52,502.0

45.8%

9.6%

2000

$ 102,616.5

44.8%

8.5%

2001

$ 39,637.0

34.7%

12.2%

2002

$ 21,524.4

33.2%

15.8%

2003

$ 19,450.8

33.6%

20.2%

2004

$ 22,236.8

34.8%

26.0%

2005

$ 23,026.7

33.8%

31.6%

2006

$ 26,485.2

35.6%

27.5%

2007

$ 30,840.7

37.9%

30.3%

2008

$ 28,227.5

38.3%

30.7%

1Q2009

$ 3,003.7

37.2%

36.2%

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report, Data: Thomson Reuters

Corporate Venture Capital Trends

Corporate venture capital group activity pulled back more than the industry overall at the end of 2008 and in Q1 2009. In Q1, corporate groups were involved in 14.4% of all venture deals and provided just under 7% of the money. This is down from recent peak levels in 2007.

Corporate Venture Capital Group Investment Analysis 1995 Through Q1 2009
Year
Count of All Venture Capital Deals
Number of Deals with CVC Involvement
Calculated Percentage of Deals with Corporate VC Involvement
$M Average Amount of All VC Deals
$M Average Amount of CVC Participation
Total VC Investment $M
Total CVC Investment $M
Calculated Percentage of Dollars Coming from CVCs
1995
1,837
136
7.4%
4.19
3.20
7,691.4
434.9
5.7%
1996
2,572
237
9.2%
4.26
3.10
10,958.5
734.9
6.7%
1997
3,155
338
10.7%
4.59
2.87
14,484.8
971.3
6.7%
1998
3,655
517
14.1%
5.59
3.32
20,426.6
1,717.6
8.4%
1999
5,499
1,288
23.4%
9.55
6.20
52,502.0
7,986.0
15.2%
2000
7,896
2,101
26.6%
13.00
7.69
102,616.5
16,166.8
15.8%
2001
4,483
995
22.2%
8.84
4.88
39,637.0
4,858.3
12.3%
2002
3,103
570
18.4%
6.94
3.36
21,524.4
1,916.8
8.9%
2003
2,946
445
15.1%
6.60
2.87
19,450.8
1,279.1
6.6%
2004
3,098
553
17.9%
7.18
2.78
22,236.8
1,537.9
6.9%
2005
3,164
552
17.4%
7.28
2.83
23,026.7
1,564.1
6.8%
2006
3,696
657
17.8%
7.17
3.08
26,485.2
2,026.4
7.7%
2007
3,967
797
20.1%
7.77
3.26
30,840.7
2,601.7
8.4%
2008
3,883
751
19.3%
7.27
2.90
28,227.5
2,174.9
7.7%
1Q09
550
79
14.4%
5.55
2.62
3,051.2
206.8
6.8%
TOTAL
53,504
10,016
18.7%
7.91
4.61
423,160.1
46,177.4
10.9%

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters

The question is often asked how corporate venture capital group investment is weighted towards certain sectors. The chart showing sector balance indicates that while corporate groups are more attracted to biotech and less to medical devices than the venture capital industry overall, the relative mix of life science vs information technology is similar.

Corporate Venture Capital Group Investment Sector Analysis - Q1 2009
Sector (Most Recent Four Quarters)
% of All US VC $
% of CVC Investment $
Biotechnology
18.9
29.2
Software
20.1
21.4
Computers and Peripherals
2.7
9.3
Industrial/Energy
7.7
7.8
IT Services
6.8
6.4
Medical Devices and Equipment
13.5
4.8
Business Products and Services
1.9
4.0
Media and Entertainment
7.1
3.7
Financial Services
3.5
3.6
Networking and Equipment
2.7
3.4
Semiconductors
5.7
2.9
Electronics/Instrumentation
0.9
1.8
Telecommunications
3.6
1.6
Healthcare Services
1.5
0.0
Consumer Products and Services
1.9
0.0
Retailing/Distribution
0.9
0.0
Other
0.5
0.0
Total
100.0
100.0

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters

Fundraising and Commitments

Fundraising, which for all but the most proven and promising had been difficult over the past several years, slowed dramatically as 2008 came to an end. Institutional limited partners found that plunging valuations in the public markets caused an over-allocation to alternative asset classes such as venture capital. This so-called "denominator" effect made it very difficult for existing limited partners to take on any new commitments, especially coupled with the fact that there have been few distributions by the industry recently. Check the NVCA website under "Industry Statistics" for the latest data.

While the industry does have capital on hand, much of that is earmarked for follow-on investment in existing portfolio companies. A prolonged fundraising drought could make future investment difficult.

Where to Go for the Latest Statistics

Quarterly statistics are posted on the NVCA website. There are four information releases for a typical quarter:

  • Exit Poll (IPOs and Acquisitions) - typically published a day or two after each quarter end
  • MoneyTree (Money invested by VC firms in portfolio companies) - Officially known as the "PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report, with data provided by Thomson Reuters." This is typically released 3-4 weeks after the close of the quarter. Shortly after that, searchable statistics and downloadable spreadsheets can be found at www.pwcmoneytree.com.
  • Fundraising (Commitments) - Typically released around the time of MoneyTree
  • Performance (IRRs) - Thomson compiles venture capital IRR benchmarks and these are released with at least one quarter lag by the NVCA and Thomson. Buyout and mezzanine return statistics are released directly by Thomson.

The NVCA 2009 Yearbook, available as PDF file to NVCA members, provides historical data back to 1980. You can download your copy from the NVCA website.

NVCA members who subscribe to ThomsonOne (formerly VentureXpert) can access the data anytime, even as it is being accumulated and posted at quarter end. For more information about the NVCA research program, contact John Taylor at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Significant NVCA member discounts are available for online subscriptions to ThomsonOne with the VentureXpert database. Contact http://www.thomsonreuters.com/business_units/financial/contactus?bu=financial for more information.
 

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