VC investing rises 11 percent in 2007 to $29.4 billion

U.S. venture capital funding continued its four-year up-swing in 2007 to $29.4 billion, propelled by record infusions into clean technology and life sciences, according to a survey. Red Herring’s Ken Schachter reports that the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association found that while the number of venture deals rose 5 percent to 3,813, the dollars invested climbed almost 11 percent compared with a year ago. Venture capitalists who participated in a conference call for the report’s release warned that a constricting initial public offering market could limit exit options in 2008. “Two thousand and seven was a good year for IPOs,” said Deepak Kamra, general partner, Canaan Partners. “We’re very concerned about the market shutting down.” Kamra said the IPO market eventually will return to health, but he also said that VCs “need to make sure our companies are funded and we have money in reserve for them.” P. Sherill Neff, founding partner of Quaker Bioventures, said that a healthy IPO market should be viewed as a “serendipitous plus”: “Right now, we’re not counting on it,” he added.

The report, based on research by Thomson Financial, found venture dollars focused on later- and expansion-stage investments, with $12.2 billion and $10.8 billion, respectively. The 1,168 later-stage investments were “the most ever,” said John Taylor, vice president of research for the NVCA. Life sciences and clean tech both notched records for venture investing in 2007. Life sciences drew $9.1 billion, a 20 percent year-over-year increase, in 862 deals. That amounted to 31 percent of all venture dollars invested. While biotechnology posted a double-digit increase, a 40 percent rise in investments in medical devices was responsible for most of the growth.

Funding of cleantech, meanwhile, accounted for $2.2 billion in 202 deals, a 47 percent increase in funding and a 58 percent increase in deal volume. “These companies have big capital needs,” said Kamra, who noted that clean tech notched some of the biggest funding rounds of the year. For instance, Foundation Capital, New Enterprise Associates, and Rustic Canyon Partners lavished $50 million on Serious Materials, a Sunnyvale, California-based developer of eco-friendly materials, while Good Energies provided a $55 million expansion round for Everpower Renewables, a New York City-based developer of wind-energy projects. The third quarter was the strongest for clean tech, with 65 investments worth $850.5 million.

Internet-specific companies, meanwhile, got $4.6 billion, an increase of 12 percent compared with 2006 levels, in 748 deals. Telecom, however, saw a 19 percent decline in funding to $2.1 billion from $2.6 billion in 2006. The number of deals also slipped to 290 from 301.