Biotech boom: statistical blip, or more?

The life sciences sector, which lumps biotechnology and medical devices together, continued to see strong interest from venture capitalists in the third quarter with $1.8 billion going into 177 deals. While investment in biotech fell 5 per cent to $1.14 billion from an extremely strong second quarter, the sector took over the accolade of "highest dollars received by a single industry category" from software for the first time.

While biotech was on the up, software saw a 19 per cent decline in investment and a 24 per cent decline in deals from the second quarter, with $1.09 billion going into 186 deals. Although it still accounted for 18 percent of total investment and 23 per cent of all deals, the third quarter saw the lowest number of software deals since 1996.

Overall in the third quarter of 2006, American venture capitalists invested $6.2 billion in 797 deals, according to the report which is published in association with the National Venture Capital Association.

This was a fall of 8 percent from the second quarter, when $6.8 billion was invested in 907 deals, but still represented the third consecutive quarter over the six billion dollar mark.

The quarter was marked by increasing strength in the seed/early stage deals and industries such as telecommunications, media and entertainment, and industrial/energy.

Fresh funds

“We are at a point in the investment life cycle where many venture capitalists are deploying fresh funds that have been raised within the last 18 months or so,” said Mark Heesen, president of the National Venture Capital Association. “Thus, VCs are finding themselves at the beginning of a fairly long runway, betting more on those seed and early stage companies that they believe will have the most promise five to seven years from now."

The Industrial/Energy sector continued a steady incline, reaching a six-year high with $576 million going into 45 companies. Within the sector, alternative energy investing increased to $274 million. The majority of this increase can be attributed to a single deal worth $209 million.

Telecommunications had its strongest quarter since 2002 with $848 million going into 72 deals, driven by deals in internet and wireless communications

Internet-specific companies captured $1.1 billion in 154 deals, a four-year high and accounting for 17 per cent of total investment.

Venture capital investment in seed and early stage companies increased 10 per cent in with $1.2 billion going into 278 deals.

In the third quarter of 2006, US venture capitalists invested $221 million in 18 deals in Chinese companies; $203 million in 18 deals in Indian companies and $46 million in 11 deals in Israeli companies.