Venture Capitalists Boost Their Investing to $22.1 Billion, the Highest Level Since ’01
Entrepreneurs found it a little easier to line up investors in their big ideas last year, even though capital still isn’t flowing anywhere near the gushing pace it reached during the dot-com boom.
Venture capital investing rose to a four-year high in 2005, with $22.1 billion invested nationwide. That was a 2% increase from 2004. There were 2,239 transactions in 2005, 10 fewer than the previous year.
Venture capitalists buy stakes in new or growing companies, hoping to cash in if those firms are later acquired or go public by issuing stock. Typically, they raise money from pension funds, endowments and other large institutional investors.
The totals for 2005 were boosted by a burst of deal-making in the fourth quarter, which was the busiest quarter of the year, said Don Williams, director of venture advisory services for consulting firm Ernst & Young.
Los Angeles and Orange counties “did pretty well,” added Williams, whose company prepared the report with research firm VentureOne.
But when San Diego County was included, Southern California investment was down 4% at just over $2 billion. San Diego County, where venture deals are heavily weighted toward the biopharmaceuticals, saw investment slip from more than $1.2 billion in 2004 to $897 million last year.
In Orange County, investment rose 73% to $490 million, with an emphasis on medical devices such as the eye lens implants of Aliso Viejo-based Eyonics Inc., which received $16.2 million.
Funding for new medical devices helped propel investment nationwide and garnered more than $2 billion in capital, the most directed at that segment since 2000.
In Los Angeles County, investment was up $3 million to $704 million on a variety of deals, including $20 million for Siimpel Corp. of Arcadia to develop a better camera for cellphones.
More than half the venture capital in Los Angeles County went into information technology, Williams said, in large part driven by innovation in the entertainment industry. For example, Internet-based ad agency Spot Runner secured $10 million.
More and smaller deals were done in Los Angeles County last year than in 2004 and Williams estimated that about 40% of those were seed money or first-round financing transactions.
The dollars invested nationwide are still paltry compared with the record $94.5-billion influx during 2000.
Southern California peaked at about $3.4 billion and has since hovered around $2 billion, but venture capitalists think that number is about right, said Williams, adding that “there’s some room for growth, but they don’t want to see another bubble.”
The outlook for the current year remains strong, Williams said. “We will, at a minimum have reasonable growth -- about 8% or better.”
By region, the San Francisco Bay Area dominated the nation in 2005 with 731 deals and $7.7 billion invested -- or 33% of all deals and 35% of the capital.
New England, with 272 deals and $2.8 billion, was the second-most-active region, followed by Southern California with 203 deals and $2.1 billion invested and the New York metropolitan area with 159 deals and $2.2 billion invested.
