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Focus on Life Sciences: 2014 Venture Capital Investment Q1 Update

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Venture capital (“VC”) investment increased in the first quarter of 2014. According to the MoneyTree™ Report, a collaboration between PricewaterhouseCoopers and the National Venture Capital Association, VC activity in the United States increased about 12% in the first quarter to $9.5 billion, up from $8.4 billion in the fourth quarter of 2013.
May 15, 2014

Venture capital (“VC”) investment increased in the first quarter of 2014. According to the MoneyTree™ Report, a collaboration between PricewaterhouseCoopers and the National Venture Capital Association, VC activity in the United States increased about 12% in the first quarter to $9.5 billion, up from $8.4 billion in the fourth quarter of 2013.

Compared to the first quarter of 2013, the increase is even more significant. First quarter investment is up 57% year-over-year, indicating a strong start to 2014. Deal size continues to increase, averaging almost $10 million per deal in the first quarter.

The total number of deals completed was lower to start the year, with 951 deals compared to 1,112 in the fourth quarter of last year. This indicates that while overall investment is up, it appears to be directed more towards later stage entities, while seed and early-stage entities experienced a decline in the value and number of deals.

As in 2013 (see our February 2014 E-Focus on 2013 VC investment), the software industry captured the lion’s share of investment in the first quarter, over $4.0 billion spread among 414 deals. Biotechnology was a distant second in terms of investment, receiving approximately $1.1 billion in the first quarter. The following chart highlights the concentration of VC investment among industries:1

 

 Geographically, California (1) and Massachusetts (2) continue to lead the nation in VC investment in the first quarter. California received $5.5 billion in VC funding, spread over 406 deals (about $13.5 million per deal). Massachusetts received close to $1 billion in VC funding, averaging $10.9 million per deal over 88 deals.

Colorado, Kansas, and Missouri ranked 12th, 25th, and 30th, respectively, in amounts invested. The following table highlights the first quarter 2014 VC investments for these selected states:

For Colorado and Kansas, this level of activity represents an improvement over 2013, while Missouri experienced a significant drop-off in investment.

 

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.

 

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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