Venture capital investment in life sciences down 9%

Despite venture capitalists investing $7 billion in 898 deals in the second quarter of 2012—a 17% climb in terms of dollars and an 11% rise in the number of deals compared to the first quarter of 2012, when $6 billion was invested in 809 deals—the life sciences sector (biotechnology and medical devices) saw a 9% drop in funding dollars and a 6% drop in deals from the prior quarter, to $1.4 billion going into 174 deals in Q2.

According to the MoneyTree Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters, the total number of early stage deals reached the highest quarterly total since Q1 2001, with $2.1 billion going into 410 deals. That’s an 18% increase in dollars and a 28% increase in deals from the prior quarter. Overall, the software industry took in the highest level of funding of all industries with $2.3 billion invested in Q2, the highest investment total for the sector since the Q2 2001.

"The concentration of venture capital dollars in the hands of fewer firms will increasingly dictate the flow of investment," said Mark Heesen, president of the NVCA. "Currently, this translates into more funding for IT startups and less capital available for life sciences and clean technology. We hope to see this investment mix rebalance over time as the startup ecosystem is better served with more diversity, not less. Additionally, we continue to watch the early stage and first-time financing numbers as they are critical to the U.S. innovation pipeline. We are encouraged that these numbers were stronger this quarter and hope that this signals an ongoing commitment on behalf of venture firms to make these longer term, breakthrough investments."

Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC U.S., said, "Given the regulatory challenges currently impacting the life sciences industry and the amount of capital required to fund these companies, it's no surprise that investments in this industry have declined for the fourth consecutive quarter."

Life Sciences investing fell, most notably in the biotechnology sector where $697 million went into 90 deals, the lowest quarterly total for the industry since the Q1 2003. The medical devices and equipment industry garnered the third highest investment amount in Q2 with $700 million going into 84 deals, an 11% increase in deals while dollars remained relatively flat compared to the prior quarter. Investments in life sciences accounted for 20% of all venture capital dollars invested for the quarter, down from 29% in 2011.

Seed stage investments rose 33% in dollars and 15% in deals, with $199 million invested into 63 deals in the second quarter. Early stage investments also rose, climbing 18% in dollars and 28% in deals, with $2.1 billion going into 410 deals, the largest quarterly deal total since the Q1 2001. Seed/early stage deals accounted for 53% of total deal volume in Q2. Expansion stage dollars increased 49% in the second quarter, with $2.6 billion going into 232 deals. Overall, expansion stage deals accounted for 26% of venture deals in the second quarter. Later stage deals decreased 10% in dollars and 11% in deals, with $2.1 billion going into 193 rounds in the second quarter.

First-time financing (companies receiving venture capital for the first time) dollars increased 24% to $1.1 billion for the quarter, the number of deals rising 27% to 282 deals. Life sciences saw a slight drop in first-time financings, falling 3% in dollars and 4% in deals during the second quarter to $130 million going into 27 companies.