May 2009 Venture Capital Roundup - VCs back Healthcare Investments Two Times as Much as Internet Startups

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					May ’09 VC Funding Roundup - Internet Investments Dwarfed by Healthcare Funding
June 2009

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About ChubbyBrain
ChubbyBrain is an NYC-based information services platform seeking to democratize startup and investor information. Startups on ChubbyBrain must have received venture, angel, incubator or university backing. The ChubbyBrain platform is a structured wiki allowing for contributions directly from investors and startups. This mass collaboration is complemented by ChubbyBrain’s core underlying technology. As of mid-June 2009, the ChubbyBrain platform contains information on 24,000+ startups and 2600+ investors.

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This analysis and associated comments can be found on at:
http://www.chubbybrain.com/blog/2009/06/may-09-vc-fundingroundup-internet-investments-dwarfed-by-healthcare-fundings/

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May ’09 VC Funding Roundup - Internet Investments Dwarfed by Healthcare Funding
As a follow-up to our earlier post regarding strong investment growth in Internet and Mobile during the month of May, our research team wanted to present a complete US May funding roundup based on deal flow information captured by the ChubbyBrain platform. Here are the high-level investment figures for May in the United States: • • • 210 total deals totaling nearly $2.05B in investment Fundings spanning 10 different sectors and over 30 different industries Funding rounds including seed, angel, debt, and Series A through Series F

In this post, we performed a deeper dive into four areas of the data, specifically: (1) geography (2) industry/sector (3) round type and (4) investor. We’ve explored each of these categories in abbreviated detail, and as always we’d love to hear your own follow-on thoughts or ideas on what we’ve provided here.

Geographic Breakdown
In May, 77 of 210 total deals (or about 37%), went to companies in California. The combined total deals of the next four leading states—Massachusetts (29), Washington (23), New York (14), and Colorado (8) — doesn’t add up to the number of funding deals in California. Shifting our focus to dollars instead of deals, May’s figures showed that about $764M of $2.05B total national investment (or about 37%) flowed into California startups. This percentage actually decreased compared to April, where over 50% of total dollars invested were in California. Helping push California’s total funding numbers to the top this month were Oak Investment Partner’s $40M financing of cancer diagnostic testing company Clarient, and Digital Sky Technologies’ $200M in Series D round funding for Facebook, the largest amount raised in a single round this month.

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Interestingly, both in terms of number of deals and dollar amount invested, 5 states alone accounted for over 70% of the nation’s funding activity in May, a pattern that we find when observing April’s data, too. The other remaining 30% was comprised of funding instances across 23 other states.

May 2009 Geographic Breakdown – Top 5 States State California Massachusetts Washington New York Colorado Total May Total Top Five % Number of Deals 77 29 23 14 8 151 210 71.90% Amount Invested (millions) $ 763.925 $ 136.092 $ 170.400 $ 167.350 $ 280.300 $ 1,518.067 $ 2,049.51 74.07%

April 2009 Geographic Breakdown – Top 5 States Number of Deals 66 15 15 13 5 112 153 73.20% Amount Invested (millions) $ 879.750 $ 193.850 $ 74.125 $ 114.830 $ 41.600 $ 1304.155 $ 1694.16 76.98%

State California Massachusetts Washington New York Colorado Total April Total Top Five %

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Industry/Sector Breakdown
The Internet and Healthcare sectors together represented 61% of the total number of deals in May, with 66 and 62 deals respectively. Although both sectors were roughly even in number of deals, Healthcare companies raised twice as much money from investors than Internet companies did, accounting for more than 50% of total May funding. The disparity between Healthcare and Internet investment increases to 4: 1 if we strip out the two biggest Internet deals for the month, Facebook and Fotolia (details below). In absolute terms, the Healthcare sector raised more than twice as much money in May than it did in April, with total Healthcare investment increasing from $456.54M to $1.03B.

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A closer look within the healthcare sector data reveals that the majority of the deal flow stemmed from companies in the Biotechnology and Medical Devices & Equipment industries, representing 25% and 39% of total healthcare investment, respectively. North Carolina-based Cempra Pharamceuticals raised $46M in Series C round funding for its antibiotics business, while Pennsylvania-based firm Small Bone Innovations pulled in close to $73M in Series D round funding for its orpthedic devices business. The internet sector was largely dominated by new funding in the service industry, which constituted 86% of this month’s $495.5M of total internet investment. Leading this month’s service industry investment was TA Associates’ $75M first round funding of microstock photograhpy website Fotolia, and also Battery Ventures, Scale Venture Partners, and Montagu Newhall Associates’ new $70M financing of ExactTarget, an email marketing firm. It’s worth noting that although this was Fotolia’s first round of institutional funding, defining it as a Series A event, the company has been operating on a self-funded basis since 2005.

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Round Type Breakdown
What type of funding was most prominent during May? In terms of number of deals, May drew in a high volume of seed funding events with 34 seed rounds, a number that includes the 20 Facebook fbFund winners for 2009. April would have seen a high number of seed rounds if we add back excluded funding data from university business plan competitions—52 seed rounds to be exact, a natural result of the school year cycle. Series A funding dollars more than doubled from April to May, jumping from $218.75M to $455.73M. This number received a big boost from Clovis Oncology, an anti-cancer agent development firm that raised $145M this month in start-up financing from New Enterprise Associates, Versant Ventures, Aberdare Ventures, Abingworth Management, and ProQuest Investments. The high amount of Series D Funding in May comes from, as previously mentioned, Digital Sky Technologies’ $200M investment into Facebook.

April & May 2009 Round Breakdown Chart (millions)

Round Type Debt Seed $ $

Apr-09 13.250 218.750 6.600 $ $ $

May-09 91.385 455.730 6.117

Series A* Series B Series C Series E Series F Total

$ $

$

Series D

$

390.540 248.750 80.700

272.300

$ $

$

218.150 498.500 24.650 -

320.382

$

Unknown

$

194.000

$

$

$

1,630.800

213.190

$

$ 2,049.508

$

429.674

*Includes 5 Series A deals of $20M or more. In some cases this represented actual startup funding and in other cases later-stage growth funding that constituted the companies first external round of institutional investment.

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Investor Breakdown Aside from the Facebook fbFund, about 21 investors showed high activity in May, either leading or co-investing on 3 or more different deals. Looking at the dollar amount raised, previously mentioned investors such as Digital Sky Technologies, New Enterprise Associates, and Abingworth Management led in funding the largest deals for May. Juxtaposing both the quantity of deals and quantity of investment together, five VCs stand out as the most active investors for the month. Highlighted in green, InterSouth Partners, Morgenthaler Ventures, Oxford Bioscience Partners, Alta Partners, and Three Arch Partners all participated in three or more deals and provided over $77M to start-ups in May. Alta Partners, for instance, raised an average of $30.2M for biotech companies Avid Radiopharmaceuticals, Taligen Therapeutics, and Calistoga Pharmaceuticals. Interestingly, 16 of the 18 investments made by these five VCs were in healthcare companies specifically, following the sector trend we observed earlier.

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May 2009 Active Investor Breakdown Investor Oxford Bioscience Partners Alta Partners InterSouth Partners Morgenthaler Ventures Three Arch Partners InterWest Partners HLM Venture Partners DAG Ventures Draper Fisher Jurvetson Kleiner Perkins Caufield & Byers Sequoia Capital Matrix Partners Sigma Partners Polaris Ventures Mohr Davidow Ventures First Round Capital Venrock Foundry Group Texas Emerging Technology Fund Founders Fund Michigan Pre-Seed Capital Fund Facebook fbFund Total Series Participation (millions) $ 97.500 $ 90.500 $ 81.000 $ 80.500 $ 77.500 $ 57.700 $ 56.600 $ 50.900 $ 47.000 $ 38.900 $ 32.300 $ 22.650 $ 22.000 $ 20.200 $ 20.130 $ 18.300 $ 17.500 $ 10.750 $ 2.525 $ 1.825 $ 0.617 $ 0.500

The May analysis raises interesting questions about expectations for future VC funding. Will investment in the healthcare industry continue to dominate relative to other sectors? Will growth in VC funding remain concentrated in only a handful of states, or will we begin to see more deal flow diffuse to other regions as well? What other trends do you expect to see continue or be broken? We’d love to hear your insights and look forward to seeing them in the comments. If you feel we’ve missed a deal or any funding data on your company, please lets us know through the comments or through email at team@chubbybrain.com and we’ll include them as we update our analysis.

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Description: May 2009 saw 210 investments in startups totaling almost $2.05B. Funding spanned 10 different sectors and over 30 different industries. Healthcare investing dwarfed internet investments by a ratio of 2:1. Full analyses of May funding data in this research report.