US VC investment halves

Despite a sharp decline in VC investment, 2002 was the fourth most active year on record for investment in US start-ups.

US-based private companies raised $20.3bn in venture capital through 2,088 financings, compared to 2001's totals of $37.7bn in 3,226 rounds, according to figures released by US research firm VentureWire.


Meanwhile, the number of venture-backed companies that had initial public offerings in 2002 plummeted to its lowest level in at least seven years, according to a Thomson Venture Economics and National Venture Capital Association survey released last week.


Despite slowing down during the second half of the year, the biotechnology sector was the most active during 2002, attracting $3.2bn in 262 financing rounds, a small increase over 2001's totals of $3bn in 219 deals. Enterprise software companies raised the most rounds, 329 for the year for $2.4bn, slightly more than half of 2001 totals of $4.1bn in 469 completed transactions. Other top sectors included wireless, which raised $1.6bn over 175 deals; semiconductors ($1.1bn, 90 deals); and medical devices ($1.2bn, 119 deals).


New Enterprise Associates kept its spot as the most active investor in US startups. After taking part in 84 financings in 2001, NEA kept the pace with 76 announced deals in 2002. Intel Capital, which had 83 investments in 2001, stayed in second place though its activity fell sharply to 53 deals. JP Morgan Partners also slowed down, to 44 in 2002 from 73 in 2001. In fourth place life science specialist Alta Partners bucked the trend by increasing its activity in 2002 to 37 deals, up from 31 in 2001. Polaris Venture Partners in fifth place was also stable with 36 deals in 2002, a small dip from 41 in 2001.


According to the Thomson Venture Economics and National Venture Capital Association survey, only 22 companies with money from venture capital firms were taken public last year, down from 35 in 2001. The IPO market peak was in 1996, during the technology boom, when 268 venture-backed companies went public.


Software companies topped the list of venture-backed IPOs in 2002 with five representatives. Medical technology was second with four companies, followed by health care services with three.


The original capitalization of all 22 venture-backed IPOs in 2002 totaled $1.91bn. That is down from $2.89bn in 2001 and $21.08bn in 2000, according to the study.