Inside the $250 Billion Venture Capital Industry

WSJ reports that Mobius Capital, an erstwhile star venture firm in Silicon Valley, is folding. Worldview is also falling apart, abandoning its latest efforts to raise a new $250 Million fund. These are the larger departures. Many smaller funds that had cropped up during the boom era, have folded by the dozens.

Nonetheless, the flow of capital continues unbridled in Silicon Valley. In July, New Enterprise Associates (NEA) announced a $2.5 billion 12th venture fund, which will focus on information technology and health-care companies. A portion of the new fund, one of the largest venture funds ever, will be used to invest in India and China.

Serious capital is chasing India, China, BioTech and CleanTech. Each has its own issues. I recently wrote a series of articles on the Indian Venture Capital situation, lack of expertise in seed investing causing a bottleneck in the pipeline (Venture Capital in India, Too Much Money, Too Few Deals).

China is in a similar excess capital situation, although the trends are somewhat different in the investment mix. Over $750 Million was invested during the first half of this year in 85 deals. But the majority of venture capital continued to go to established companies, with half of the companies receiving financing in the second quarter were already shipping products and 15 had attained profitability. However, first-round deals accounted for 54% of the quarter’s total number, and 38% of the total capital, with the average size of a first-round deal being $4.3 million.

This indicates, that entrepreneurs in China too are bootstrapping the seed stage. This will continue to be a bottleneck in the Chinese dealflow.

BioTech & CleanTech are receiving huge attention in the US market, although in India and China, the focus is still largely on IT.

Capital investment in health care companies increased 25% over the same quarter a year ago, reaching $2.24 billion in 160 rounds. The biopharmaceutical segment was the major driver of this with 80 deals and $1.45 billion invested, including eight of the top 12 deals posted this quarter. Of note, a number of those large deals included partnering investments from major pharmaceutical companies. The total investment in biopharmaceuticals was the most capital investment in the segment since VentureOne began tracking the data in 1992.

The medical devices segment also had a strong quarter with 58 deals and $617.6 million, increases of 32% and 30% respectively, over the same quarter last year. While the health care category was responsible for a number of the largest deals, investors also funded 58 seed and first-round health care deals this quarter, up from 47 in the same quarter of last year. The median size of a health care deal was $8 million, down slightly from $8.2 million a year ago.

BioTech is a long gestation period business. New drugs often take 12 years to get to market. Typically, patience has not been the forte of Venture Capitalists, but looks like they are biting the bullet and signing up for the long haul.

Reneweable Energy, CleanTech, and other Green issues have recently been riding the hypecycle. Also very long gestation period deals. We’ll see how long the VCs, who boast acute attention deficit disorder, last in these categories.

The growing interest in renewable sources of energy fueled increases in the alternative energy segment which had deal flow triple from a year ago to 15 and investments reach $239.1 million, a 290% increase. The energy category as a whole reached its highest level on record with $354.4 million invested in 25 deals. Of note, two of the largest deals this quarter were alternative energy investments: a $75 million later round for Nanosolar of Palo Alto, Calif., and a $50 million first round for Altra of Los Angeles, Calif.

For more detailed statistics, please see the EY-Venture One coverage.