By Donald Zuhn --
In December, the National Venture Capital Association (NVCA), a trade association representing the U.S. venture capital industry, issued its forecast for venture investment in the coming year, predicting that most sectors would see a continued slowdown in investment in 2009 (see "NVCA Predicts Another Slow Year for Venture-backed Businesses in 2009"). If there was a bright spot in the NVCA's forecast (which was based on a survey of 400 venture capitalists), it was that 25% of those surveyed predicted that venture investment in biotechnology would increase, and 33% believed biotech funding would stay flat in 2009. The news, however, was much worse for other industry sectors, as 60-79% of respondents believed venture funding would drop in 2009.
Last month, the NVCA released the results of a new study, conducted with PriceWaterhouseCoopers and Thomson Reuters, which indicates that venture capitalists invested $28.3 billion in 2008, marking the first yearly decline of total investments since 2003. Fourth quarter investments, which totaled $5.4 billion, were the lowest amount invested since the first quarter of 2005. NVCA President Mark Heesen stated that the fourth quarter decline in investment funding was not unexpected in view of the recession, and noted that "[v]enture capitalists are being cautious with their dollars which, in this environment, is the right strategy." An increase in seed and early stage investment, which was at a eight-year high, led Mr. Heesen to conclude that "venture capitalists are continuing to fund very young companies, giving credence to the philosophy that an economic downturn is a time ripe with opportunity." Tracy Lefteroff, global managing partner of the venture capital practice at
PricewaterhouseCoopers, noted that while investment funding declined for the first time in five years, the 2008 total still marked the fifth highest amount of funding in the past fourteen years. She added that "[t]he silver lining is that history has proven that true innovation can surface under very challenging circumstances."
With respect to the life sciences sector (biotechnology and medical devices), the NVCA study showed a 15% drop in total investment last year (from $9.3 billion in 2007 to $8.0 billion in 2008). Despite this drop in investment dollars, the number of deals dropped by only 3% (from 883 in 2007 to 853 in 2008). However, in terms of dollars and deals, the fourth quarter saw more severe drops of 33% and 22%, respectively. Notwithstanding the bad news, the life sciences sector continued to lead all other sectors, collecting 28% of total venture investment.
In addition to the NVCA study, the Biotechnology Industry Organization (BIO) issued a statement earlier this month regarding a survey the biotech trade group conducted with Thomson Reuters. According to the BIO survey, which was released during the 11th Annual BIO CEO & Investor Conference, the biotech industry is expected to rebound and outperform healthcare and the rest of the market this year. Investors surveyed in the BIO study predict high merger and acquisition activity in 2009, with major pharmaceutical companies acquiring biotech companies of all sizes and large biotech companies acquiring smaller biotech companies. More importantly, 70% of survey participants expect biotech to outperform the rest of the market in 2009. In addition, 87% of investors surveyed expect biotech to rebound by at least 2010, with 57% predicting a rebound by the end of this year. BIO intends to release the full study at the end of March.