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Focus on Life Sciences & Technology: 2014 Venture Capital Investment Q2 Update

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Venture capital (“VC”) investment gained steam in the second quarter, building upon an already robust start in the first quarter of 2014. According to the PricewaterhouseCoopers / National Venture Capital Association MoneyTree™ Report, VC activity in the United States increased about 37% in the second quarter to $13.0 billion, up from $9.5 billion in the first quarter.
July 21, 2014

Venture capital (“VC”) investment gained steam in the second quarter, building upon an already robust start in the first quarter of 2014. According to the PricewaterhouseCoopers / National Venture Capital Association MoneyTree™ Report, VC activity in the United States increased about 37% in the second quarter to $13.0 billion, up from $9.5 billion in the first quarter.

Compared to 2013, the increase is even more significant. Second quarter investment is up 81% year-over-year, even more impressive than the first quarter’s 57% year-over-year increase (see our 2014 Venture Capital Investment Q1 Update). Total investment through the first half of 2014 is $22.4 billion, and if this pace continues, 2014 total VC investment should easily exceed 2013’s total of $29.6 billion.

As in the first quarter, the trend of increasing deal size continues, averaging $11.6 million in the second quarter, compared to about $10.0 million per deal in the first quarter. There was a total of 1,114 deals completed, compared to 951 in the first quarter. Seed funding increased in the second quarter but investment is still most heavily concentrated in expansion stage entities.

The software industry continues to dominate in attracting VC investment. In the first quarter, software accounted for 47% of the investment, up from 42% in the first quarter, and 37% for all of 2013 (see our 2013 Venture Capital Investment: Year in Review). There was $6.1 billion in software related investment, spread among 454 deals. Biotechnology continues to hold second place, capturing $1.8 billion in the second quarter:1

 

Geographically, California (1) and Massachusetts (2) continue to lead the nation in VC investment. California received almost $8.0 billion in VC funding, spread over 465 deals (about $17.1 million per deal). Massachusetts received over $1.1 billion in VC funding, averaging $10.3 million per deal over 112 deals.

Colorado, Missouri, and Kansas ranked 8th, 18th, and 40th, respectively, in amounts invested. The following table highlights the second quarter 2014 VC investments for these selected states:

 

 

For Colorado and Missouri, this level of activity represents an improvement over the first quarter, while Kansas experienced a significant drop-off in investment. Totals for the first half of 2014 are:

 

We will continue to monitor the levels and trends in VC investment and what they mean for life sciences and technology related industries and the overall economy. RubinBrown has a dedicated Life Sciences and Technology Services Group that works with local, national, and international companies to provide advisory, assurance, and tax services for entities participating in or supporting life sciences and technology 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; 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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