Venture capital investment into U.S. headquartered companies climbed 8 percent in the first quarter of 2007 compared to the same period last year to reach $6.96 billion, according to the Quarterly Venture Capital Report released today by Dow Jones VentureOne and Ernst & Young LLP.
The report showed that deal count reached 584 deals for the quarter, down by 31 deals from the first quarter of 2006.
Coming off a five-year high for both deals and investment in 2006, the report indicated that momentum for the venture capital market is continuing in 2007. The notable trends in the first quarter include a significant level of early-stage activity with investors financing proportionally more seed- and first-round deals and dramatically increasing investing in life sciences. In fact, the $2.88 billion invested in healthcare companies in the first quarter was the highest investment level on record.
While companies identified as alternative energy and environmental technologies make up only a small portion of overall venture capital activity, both of these sub-segments showed significant growth in the first quarter, according to the quarterly report. For example, $237.0 million was invested in 10 alternative energy deals in the first quarter, compared to $53.8 million and six deals in the first quarter of 2006. There was also $54.1 million invested in eight environmental companies in the first quarter of 2007, compared to $4 million invested in one deal a year ago, the data showed.
Venture capital investment in healthcare showed the most significant uptick of the major venture-backed industries, the quarterly report found. There were 167 healthcare deals in the first quarter of 2007, 15 more than were completed a year ago. An additional $1.13 billion more was invested in this category, bringing the total for the quarter to $2.88 billion, a 65 percent increase over the first quarter of 2006.
For information technology, deal flow and investment declined from a year ago, the quarterly data showed. There was $3.12 billion invested in 336 technology companies in the first quarter of 2007, down 16 percent and 8 percent, respectively, from the same quarter of 2006. Within the IT category, only the information services segment, which includes many of the Web 2.0 innovations, reported an increase with 16 more deals than a year ago and 10 percent more capital, bringing the total investment here to $722.5 million into 91 deals.
The quarterly report also identified the continuation of two other trends that surfaced in recent quarters—the increasing size of venture capital deals and the proportional increase in early-stage investment. The median deal size reached $8 million, up from $7 million in the first quarter of 2006 and making it the highest quarterly median round size since the fourth quarter of 2000. By industry, healthcare financings had the largest medians at $12.7 million, followed by information technology financings at $7 million and business, consumer and retail financings at $6 million.
By round class, early-stage financings made up 37 percent of overall deal flow in the first quarter, holding steady with the increased proportion of seed- and first-round deals reported throughout 2006. Later-stage rounds made up 34 percent of the total venture capital rounds in the quarter and second rounds made up 24 percent.