Venture capitalists were feeling positive in Q2 as they invested $7.5 billion in 966 deals. This represents a 19% increase from last month, according to the MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association.
Furthermore the quarterly investment level represents the highest total in a single quarter since the second quarter of 2008. The deal count for the first half of 2011 (1,780 deals) is nearly identical to that seen in the first half of 2010 (1,784 deals) while the $13.8 billion invested in the first half of 2011 represented a 12% increase over the $12.3 billion invested in the first half of 2010.
The Life Sciences sector (biotechnology and medical device industries combined) saw an 37% increase in VC dollars, rising 37% in dollars and 12% in deal volume from the prior quarter to $2.1 billion going into 206 deals.
"The exit market for both biotech and medical device companies has been active over the past year, and this has encouraged VCs to put more money back to work in this space," noted Tracy T. Lefteroff, global managing partner at PwC US. Overall, the increase in investment levels in Q2 remains encouraging for entrepreneurs. At the current pace of venture capital investing, 2011 is on track to exceed $26 billion, which would put it as the sixth most active year in VC investing history."
The top five regions this quarter were:
- Silicon Valley -- $1.03 billion
- New England -- $345 million
- Southeast -- $290 million
- LA/Orange Co. -- $236 million
- NY Metro $208 million
The importance of VC money to the life sciences sector was a salient issue pointed out by Jonathan S. Leff, Managing Director at Warburg Pincus LLC during his testimony before the U.S. House of Representatives Committee on Energy and Commerce, Health Subcommittee on July 7. "Venture capital provides the essential fuel for medical innovation, by funding the discovery and development of novel therapies to treat disease. For the past three decades, venture capital has been a primary source of this vital risk capital, has funded the development of an entire generation of important new medicines, and has financed and helped build almost every successful company in the world-leading U.S. biotechnology industry."
Looking forward Leff is concerned about the strain this industry is facing. "The cost, time, and risk of developing novel therapies for important diseases have all grown to the point where, increasingly, investors can no longer earn returns on these investments. As a result, the vital risk capital that for the past several decades has funded U.S. medical innovation is being diverted to other industries and other countries."
He points to the fact that during 2010 and 2011 to date," first-time fundings of life sciences ventures -- a key leading indicator of the health of the innovation ecosystem - have decreased by more than 50% compared to prior years."