Venture capital (“VC”) investment increased in 2013, both in amounts invested and in deals made. According to PriceWaterhouseCoopers’ and National Venture Capital Association’s MoneyTree™ Report, VC activity in the United States increased by about 7.5% in 2013 to $29.4 billion in VC investment, up from $27.3 billion in 2012.
This is a healthy improvement, but the total is still about $2.6 billion below the post- dotcom bubble peak of $32.0 billion in 2007. 2013 investments were spread among 3,995 deals, a 3.6% increase over 2012 (3,858 deals). The average deal size increased about 4%, to $7.4 million in 2013 from $7.1 million in 2012.
The Software industry accounted for the largest contribution to growth (about $2.4 billion) followed by Media and Entertainment ($0.8 billion). These large increases helped offset a significant decline in investment in the Industrial/Energy industry of about $1.4 billion.
The Software and Biotechnology industries account for the largest share of activity, in terms of total dollars invested and in number of deals. Software, in addition to seeing the largest increase in dollars invested, also attracted the largest proportion of the funding at $11.0 billion, accounting for over 37% of total invested capital, spread over 1,523 deals. This is not surprising. Software has become one of the primary innovative sectors in the economy, as evidenced by the growth of software patenting in recent years (see our November E-Focus on Intellectual Property). The Biotech industry had the second largest share, at $4.5 billion, or 15% of the total, through 470 deals. The following chart highlights the concentration of VC investment among industries:
Combining certain industries into selected sectors, the Life Sciences and Technology sectors account for the lion’s share of VC activity.2 This has been true over the previous ten years. Combined, these two sectors account for between 61% and 77% of annual VC investment, averaging 67% over the ten year period 2004 – 2013. However, it is interesting to examine the trends in the data:
During the early half of this period, growth in Life Sciences VC investment outpaced growth in Technology, and Life Sciences increased market share while Technology’s market share declined. Both sectors saw a drop in investment in 2008 and 2009 due to the recession, with investment bottoming out in 2009.
However, Technology related investment has rebounded strongly, and in 2013 reached a post-dotcom bubble high of $13.4 billion, accounting for 45% of total VC investment. Life Sciences on the other hand has struggled, losing share of investment funds to other sectors, and has had little overall growth since the 2009 trough.
Geographically, California (1) and Massachusetts (2) led the nation in VC investment. California received $14.7 billion in VC funding in 2013, spread over 1,599 deals (about $9.2 million per deal). Massachusetts received $3.1 billion in VC funding in 2013, averaging $8.5 million per deal over 358 deals.
Colorado, Missouri, and Kansas ranked 11th, 27th, and 31st, respectively in amounts invested. The following table highlights the 2013 VC investments for these selected states:
We will continue to monitor the levels and trends in VC investment and what they mean for those industries and the overall economy. RubinBrown has a dedicated Life Sciences Services Group to provide assurance, tax, and business advisory services for entities participating in or supporting life sciences industries.
1The MoneyTree™ Report provides definitions for each industry classification. All Other Industries includes the twelve other MoneyTree™ Report industries of: Business Products and Services; Computers and Peripherals; Consumer Products and Services; Electronics/Instrumentation; Financial Services; Healthcare Services; Industrial/Energy; Networking and Equipment; Retailing/Distribution; Semiconductors; Telecommunications; and Other.
2For purposes of this article, the Life Sciences sector includes the Biotechnology and Medical Devices and Equipment industries. The Technology sector includes the Computers and Peripherals, Networking and Equipment, Semiconductors, Software, and Telecommunications industries.
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