report
2.3 Venture Capital Trends and Development

Global Trends in Venture Capital

The PriceWaterhouseCoopers Money Tree Report (Full Year 2009) which tracks VC investments in the United States found a 28% quarterly drop in Q408, with the amount of investment dropping from US 7.339 billion to USD 5.403 billion. Development over the period 2006-2008 is shown in figure 1. This decline was partially reversed during 2009, though with investments still 30% lower than the Q407 peak.

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Figure 1: Equity Investments in US Venture-backed companies, PriceWaterhouseCoopers MoneyTree Report, Full Year 2008

Another notable finding from the MoneyTree report was that investments into one of the categories in which nanotechnology firms would be located, Industry/Energy, declined from 938 MUSD in Q309 to 570 MUSD in Q409. However both Semiconductors and Medical Devices showed an increase in funding from Q3 to Q409.[1]

The European Venture Capital Association’s (EVCA) Quarterly Trends Report has three key indicators for venture capital performance; funds raised, investments, and divestments.

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Figure 2: Venture Capital Activity in Europe, EVCA Quarterly Activity Indicator Trends in Q3 2008

hese figures, indexed at 100 at the start of 2007, show a sharp decline in fund raising and investment from the latter half of 2008. Fund raising was down 75% during 2009, though with a slight uptick towards the end of the year. There are no such glimmers of hope in investments, still languishing at 10-12% of the 2007 figure.[2]

This is not to say that fundraising has ceased altogether. Index Ventures raised a € 350 million fund - Index Ventures V - at the beginning of March 2009. The fund will target investments in technology, biotech and clean tech, and its geographical scope will include Europe, the US and Israel. A number of Index Venture's current portfolio companies operate in field impacted by nanotechnology, such as oncology and photonics.

Deal Sizes Increase

The level of funding directed to Seed Stage investments in 2009 remained at the same level as 2009 (1,6 billion USD). However, an issue identified in the last version of this report, that the size of a seed round continued to increase, was again in evidence. The  Seed Stage funding total was distributed amongst 312 companies rather than 2008’s 493, meaning that the average seed round size increased by almost 2 million USD to 5,29 million USD.

This may be continued to indicate that the definition of what is typically thought of as seed round; funding a company to the point where is can develop proof of concept and get first customer feedback, is expanding. A challenge occurs if companies, who cannot justify that level of investment, instead receive none.

[1] http://www.bizjournals.com/triangle/stories/2009/01/19/daily3.html

[2] http://www.nvca.org/index.php?option=com_docman&task=doc_download&gid=398&Itemid=93