Growth equity deals bolster global venture markets

Year-end 2007 data shows that increased investment in later stage deals drove growth in the US and European VC markets, whereas Israel’s most active firms focussed on seed-stage investments.

Record growth in European and US venture capital markets last year was fueled by increased investment in growth-stage companies, providing further evidence that the lines between the private equity and venture capital asset classes continue to blur.

Later stage VC deals increased substantially in the US from 2006 to 2007, both in terms of total capital invested and quantity of deals, according to data released by the National Venture Capital Association. Investors placed $12.2 billion into 1,168 deals last year, a 24 percent increase from the 9.8 billion placed into 1,006 deals in 2006. Later-stage companies also accounted for an increasing share of deal flow, representing 31 percent of all 2007 deals, a 3 percent year over year increase.

Led by later stage companies in terms of dollars, overall VC investment in the US reached its highest level since 2001, hitting $29.4 billion. The amount represents a year-over-year growth of 10.8 percent. Meanwhile, deal volume experienced a 5 percent increase from the previous year, totaling 3,813.

Similarly, VC capital invested in European companies was at record levels last year, reaching its highest annual total since 2002, according to the quarterly European Venture Capital Report released by Dow Jones. Toal investment hit €4.56 billion in 2007, despite a 10 percent drop in deal count. Later stage investment accounted for €2.07 billion of the 2007 total, up 13 percent from the previous year.

Jessica Canning, VentureSource director of global research, said the trend has to do with venture capitalists “focussing more resources toward developing older portfolio companies in traditional spaces like software, biopharmaceuticals and communications and networks”. Those sectors, she said, are “the few areas that have been able to find exits in Europe’s tight liquidity markets”.

The increased attention on later stage companies has not extended to Israel, however. Israel’s nine most active venture capitals funds made 43 percent of their investments last year in seed stage firms, according to the IVC Research Center.