Venture capital investment in early stage companies is set to reach $32 billion (€24 billion) this year, the highest volume of venture capital investment since 2001, according to research by Dow Jones VentureOne and Ernst & Young.
The average deal size in venture capital in 2006 grew to the largest in six years, reaching $7 million in the US, $5.5 million in Israel, $5 million in China and $3 million in Europe after the third quarter.
Gil Forer, global director of Ernst & Young’s venture capital advisory group, said: “Demand for innovation in sectors such as Web 2.0, cleantech and biotechnology is increasing in both mature and emerging markets. The positive exit environment and the end of the fundraising cycle in most markets is spurring investments.”
Forer also said that venture-backed companies today have higher capital requirements, because holding periods have lengthened. Faced with global competition, companies also had to expand geographically earlier in their life cycles, Forer added.
India and China have seen fast growth in venture capital investment this year, the research shows, with India totalling $178 million invested in 48 deals. One widely noted deal in the country was a $10 million investment by Sequoia Capital in AppLabs Technologies, a provider of software testing with offices in Hyderabad.
Meanwhile, China is expected to reach a three-year high. Chinese investment stands at a total of $1.2 billion so far this year, compared to a total of $1.2 billion in all of 2005. The volume of investment has been lifted by the increasing interest in clean technology, bringing the number of cleantech deals completed in China to nine and the total amount invested in the sector to $74 million. The average deal size in this sector grew by $1.3 million this year to $6.3 million.
In the US, $585 million has been invested to 60 cleantech companies so far this year, 30 percent more than in 2005. European investment in the sector is up 26 percent, at $102 million.
Ernst & Young said 2007 is likely to see further growth in Asia and an increased focus on the internet and environmental sectors.