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Focus on Life Sciences & Technology: 2015 Venture Capital - A Year in Review

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In 2015, venture capital (VC) investment reached its highest level since 2000 (but deal count dropped slightly from 2014). According to PriceWaterhouseCoopers’ and the National Venture Capital Association’s MoneyTree™ Report, VC investment in the United States increased 16% in 2015 to $58.8 billion, up from $50.8 billion in 2014 (See our 2014 Year in Review)
February 11, 2016

In 2015, venture capital (VC) investment reached its highest level since 2000 (but deal count dropped slightly from 2014). According to PriceWaterhouseCoopers’ and the National Venture Capital Association’s MoneyTree™ Report, VC investment in the United States increased 16% in 2015 to $58.8 billion, up from $50.8 billion in 2014 (See our 2014 Year in Review).  

This is a significant improvement over a very strong 2014. Both 2014 and 2015, have greatly exceeded the previous post-dotcom bubble peak of $32.0 billion reached in 2007. 2015 investments were spread among 4,380 deals, a 1% decrease from 2014 (4,441 deals). The average deal size increased 17%, to $13.4 million in 2015 from $11.4 million in 2014.

The financial services industry accounted for the largest contribution to growth ($2.0 billion) followed by consumer products and services and software ($1.7 billion each). Only a small handful of industries saw a decrease in investment: computers and peripherals (-$0.72 billion), electronics/instrumentation (-$0.32 billion), networking and equipment (-$0.21 billion), business products and services (-$0.06 billion) and medical devices and equipment (-$0.01 billion).

The software and biotechnology industries account for the largest share of activity, in terms of total dollars invested. Software attracted the largest proportion of the funding at $23.6 billion, accounting for over 40% of total invested capital, spread over 1,763 deals. The biotech industry had the second largest share, at $7.4 billion, or 13% of the total, through 475 deals. The following chart highlights the concentration of VC investment among industries:1

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 have historically accounted for between 64% and 74% of annual VC investment, averaging 68% over the eleven year period, 2005 – 2015.  However, it is interesting to examine the trends in the data:

During the early half of this period, the growth rate in life sciences VC investment outpaced the growth rate 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.  

Technology related investment has rebounded strongly, and in 2015 reached a post-dotcom bubble high of $29.2 billion, capturing 50% of total VC investment. Life sciences on the other hand has struggled to match technology’s growth, losing share of investment funds to other sectors, and has only recently, in 2014 and 2015, experienced growth in overall investment.

Geographically, California (1) and New York (2) led the nation in VC investment.  California received $33.7 billion in VC funding in 2015, spread over 1,773 deals (about $19.0 million per deal). New York received $6.2 billion in VC funding in 2015, averaging $13.5 million per deal over 462 deals.  

Colorado, Missouri and Kansas ranked 10th, 20th and 32st, respectively in amounts invested. The following table highlights the 2015 VC investments for these selected states:

While overall, 2015 was a great year for VC activity, the fourth quarter of 2015 indicated a significant slowdown in deal count and investment. Historically, the fourth quarter is typically one of the strongest quarters for VC activity and would typically see the most deals and investment relative to other quarters. However, 2015 is an exception. Fourth quarter 2015 activity dropped significantly both from the prior quarter and on a year-over-year basis. It is too early to tell if this is a result of high valuations in capital markets or if perceived economic weakness is tempering demand.

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; 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.

 

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

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