Third Quarter Shows Venture Capital Still Strong in 2007

The 2007 third quarter MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association suggests an ongoing stability in funding from venture capitalists. While the first six months of 2007 boasted the highest level of deals reported since 2001, the third quarter produced $7.1 billion invested in 887 transactions; down slightly from the $7.2 billion invested in 1,000 deals last quarter.

Software and life sciences (biotechnology and medical devices) continued to attract dollars with a combined $3 billion invested in 362 transactions. These two sectors represented 42% of the investment dollars for the quarter. Internet-specific companies garnered $1.1 billion of funding for 195 deals, a 17% increase from the prior period. The Media and Entertainment sector also experienced growth this quarter with $509 million invested in 96 deals, compared to $464 million going into 77 deals last quarter.

Despite a 15% decrease in Seed and Early stage investment dollars, the average Seed and Early stage deal size increased. Seed deals averaged $2.4 million, compared to $2.0 million last quarter, and Early stage investments increased to $5.6 million from last quarter’s average of $5.0 million.

Total expansion stage investing increased from $2.3 billion to $2.7 billion. The average size of an expansion deal also increased significantly to $9.2 million from $7.8 million in the second quarter.

Later stage investments modestly declined in the third quarter. This quarter noted 288 deals totaling $3.0 billion compared to the 303 deals totaling $3.2 billion last quarter. The average transaction size also decreased, falling from $10.6 million to $10.5 million.

First time deals (companies receiving venture capital dollars for the first time) reported steady investment with $1.7 billion invested in 273 deals in the third quarter, compared to the same amount going towards 347 transactions in the second quarter. This quarter, first time deals averaged $6.3 million, a substantial increase from the last quarter, in which the average investment totaled $5.0 million.

Receiving nearly $2.5 billion of the venture capital funds in the third quarter, Silicon Valley garnered more investment funding than any other region in the United States. New England, Los Angeles, Texas and New York City rounded out the top five areas for venture capital investments.