Global VC Investments to Hit 5 Year High in 2006 - E&Y and VentureOne

Global venture capital investment in 2006 is poised to hit a five-year high and register the highest annual investments of $32 billion since 2001 when VC investments reached $51.22 billion, according to a global year end analysis by Dow Jones VentureOne and Ernst & Young. 

Some $25.39 billion VC investments were made during the first three quarters of this year. However, the total number of deals this year may fall short of the  3,931 deals in 2005.

Key driving factors for the surge in global VC activity, according to Gil Forer, global director of Ernst & Young's Venture Capital Advisory Group:

  • 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 fund raising cycle in most markets is spurring investments. 
  • Venture-backed companies also have higher capital requirements today as the median time from initial VC financing to exit lengthens and the need to establish global operations comes earlier in their life cycles in the face of growing global competition. 
  • Venture capitalists are responding to the need of large multinationals to get closer to the innovation pipeline, whether through partnerships with promising start-ups or acquisitions of innovative companies

Key VC Metrics: M&A, IPOs, Fund Raising, India

  • The US has posted 311 venture-backed M&As as of the third quarter, and Israel has posted 32, both up from last year’s levels. 
  • The median amount being paid for those companies in M&A deals — $50million in both the US and Israel — has topped 2005 amounts in both countries. 
  • In Europe, 56 venture-backed IPOs, raising $1.22 billion,  have been completed through the third quarter, making it likely that Europe will complete the most venture-backed IPOs this year since 2000, 
  • The US, with 37 IPOs so far this year and $2.47billion raised, is on path to exceed last year’s level. 
  • Global venture capital fund raising, at $24.22billion, remains off the pace of last year, when it topped $33.18billion due to particularly strong private equity funds in Europe.
  • In India, venture capital investment activity has seen as much as $178million invested in 48 deals in India this year

Early-stage activity in 2006:  

  • 42% of the completed rounds in Europe so far this year have been seed and first rounds, the most proportionally since 2001. 
  • In the US 36% of the rounds have been seed and first rounds, the same percentage as last year, but the most since 2001.
  • The median size of venture capital deals, which grew considerably in 2006, reaching $7 million in the US, $5.5 million in Israel, $5 million in China and $3 million in Europe after the third quarter.

Emerging Interest in CleanTech
Among the most positive signs in the venture capital market in 2006 is the considerable attention being focused on clean technology. 

  • $761.4million has been invested in clean technology on a worldwide basis so far this year, up 50% from $504.1million invested after the first three quarters of 2005.
  • In the US alone, $585.6million has been invested to 60 companies focused on the area so far this year, already 30% more than was invested in all of 2005. 

Note: The investment figures included in this release are based on aggregate findings of VentureOne’s proprietary European research and are contained in VentureSource. This data was collected by surveying professional venture capital firms, through in-depth interviews with company CEOs and CFOs, and from secondary sources. These venture capital statistics are for equity investments into early-stage, innovative companies and do not include companies receiving funding solely from corporate, individual, and/or government investors. 

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