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PwC MoneyTree VC Survey Q4 2003 and Full Year Summary
By Steve Bengston - Managing Director, Emerging Company Services, PricewaterhouseCoopers
VC investment in the US increased roughly 11% in Q4’03 to $4.9 Billion, vs Q3’03. Full year VC investment in 2003 totalled $18.2 Billion, a 15% drop from 2002 and an 85% drop from the peak in 2000. Despite those drops, 2003 will go down as the 6th largest year in VC history, larger than any year before 1998. Corporate VC investing also dropped roughly 40% to $1.1 Billion in 2003, again representing about 5% of the total VC market. Most corporations have formally or informally shut down their VC operations.
The past 6 quarters have all been between $4.2 and $4.9 Billion, so we appear to have reached an equilibrium level of investment in the $4-5 Billion per quarter range for the forseeable future. If this trend continues, 2004 would again total around $18 Billion. This would be the first year since 1994 we have not had at least a 15% change up or down, so don’t bet on stability quite yet. To put these fluctuations into perspective, virtually every year from 1983 to 1991 changed less than 15% from the prior year.
Silicon Valley remained the #1 area for investment in 2003, getting 32% of the dollars. The other top 5 markets receiving funds were:
2. New England: 15%
3. New York: 8%
4. Texas: 6%
5. Southeast: 6%
Investment by geography has been relatively constant the past 6 years, with only New England showing a substantial change (up).
Combined with Sacramento, California receives roughly 45% of the private equity investment in the US, which should bode well for the California economy, no matter who the governor is
Software generally is the #1 category with roughly 20% of the vc dollars, although Biotechnology edged out Software for #1 for the first time ever in Q3 and Q4 of 2003. For the full year 2003, the top 5 industries receiving money were:
- Software: 20%
- Biotechnology: 19%
- Telecommunications: 11%
- Networking & Equipment: 9%
- Medical Devices & Equipment:: 8%.
Later stage investment still commands a high percent of the vc total, with roughly 27% of vc dollars going to Series E or later. Investment by round for full year 2003 was:
Series A: 19%
Series B: 18%
Series C: 20%
Series D: 17%
Series E+: 27%
Series A as % of total has declined to about 19% of the total dollars and 22% of the total number of deals, but appears to have stabilized at these levels. Series A is now below the total of Series E+, which indicates a large number of companies are being kept afloat and that returns to venture capital will remain poor by historical standards.
Median deal size had remained roughly $4 Million for 6 quarters and then surged to $ 5 Million in Q4 2003, indicating the companies that can raise money can raise substantial amounts.
Top Private Equity firms as defined as # of deals in 2003 were:
- NEA: 73 Deals
- Draper Fisher Jurvetson: 52 Deals
- Sevin Rosen: 50 Deals
- Polaris: 47 Deals
- USVP: 43 Deals
Over 50% of all deals are insider only, so it is clearly very tough to bring in new investors. New companies should focus on creating a syndicate at Series A that can fund them through liquidity. Otherwise, CEO’s will likely spend excessive amounts of time trying to raise money from new investors, with a low probability of success.
Venture firms appear to have settled into two camps:
- Veteran Firms on at least their 4th fund. Little fear of raising a new fund. GP’s are generally ex-operating execs. These firms are generally quite aggressive, making significant number of investments in 2003 and plan to continue doing so in 2004
- New funds, less than 4 funds under their belt. Significant fear of raising a new fund, GP’s often have little or no operating experience. These funds are generally quite cautious at making new investments, focusing on keeping their existing companies alive that appear to have a chance at a decent exit, hoping one of them can save the fund and allow them to raise another fund.
Please visit www.pwcmoneytree.com for full report on the PwC MoneyTree VC Survey.
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