Venture Capital Investment on Pace to Hit Six-Year High, Demand for Talent Grows
Global venture capital investment is on pace to hit a six-year high in the fourth quarter. VC investment is expected to top $40 billion by the end of the year, the highest level since 2001 ($55 billion), according to Dow Jones VentureOne and Ernst & Young. The analysis also shows that deal flow is likely to come in slightly above the 3,884 deals completed in 2003. Executive recruiting firm, A.E. Feldman says the trend is increasing demand for talent. The surge in overseas investment and M&A, in particular, is driving demand for U.S. investment professionals and attorneys with structured finance and capital markets experience.
During the first 9 months of the year capital investment in the US, Europe, China and Israel surpassed $30 billion, and by the close of 2007 investment is expected to top $40 billion, according to Dow Jones VentureOne and Ernst & Young.
Gil Forer, Global Director of Ernst & Young’s Venture Capital Advisory Group, attributes the new global surge in venture capital investments to a number of factors:
- Heightened demand for innovative technologies in energy efficiency and medical technology around the globe in both mature and emerging markets.
- The healthy exit environment, both for IPOs and for mergers and acquisitions, is spurring investment in a number of areas.
- Today’s venture-backed companies need to establish competitive, global operations quickly and thus require more financing capital.
- Venture capitalists are responding to the demand for external innovation. An increasing number of large corporations that have concluded they must look for innovation beyond their in-house research and development functions to win in their markets.
Deal Sizes Growing
The median deal size surpassed a record $6 million for the first time in Israel and China, according to Dow Jones VentureOne and Ernst & Young. In Europe, the median stands at a record $3.95 million. Meanwhile, the U.S. VC industry saw its deal median reach $7.55 million, the highest level since 2000.
CleanTech Leading the Way
CleanTech investments by U.S. venture capital firms reached $2.6 billion from 168 deals in the first three quarters of 2007, compared to $1.8 billion from 180 deals in 2006, according to data from Thomson Financial and the National Venture Capital Association (NVCA). The analysis conducted by Dow Jones VentureOne and Ernst & Young also shows continued interest in the cleantech sector.
Solar energy, in particular, was the biggest sub-sector for cleantech investments in the first three quarters of the year, with 35 solar related deals, according to the NVCA.
Jessica Canning, Director of Global Research at Dow Jones VentureOne, says, “This year has continued the upward trend we saw beginning at the end of 2005 when the venture capital investment cycle began to ramp back up. This is particularly evident in emerging areas of investment, where venture-backed companies are aiming to improve the health of the planet and its people. In addition, the booming interest in consumer technology and services in emerging markets like India and other Asian markets is helping to drive the growth of the global venture capital industry, as evidenced by the development of new venture capital hotbeds in Beijing and Bangalore.”
Looking Ahead
Despite turmoil in the credit markets, the VC industry is expected to remain “robust” in 2008, according to Dow Jones VentureOne and Ernst & Young. The analysis predicts that large multinational corporations will increase their investment activity and partnerships with venture-backed companies. Continued growth in the new venture capital markets in Asia is expected in the coming year along with more investment in health care and cleantech innovations in energy and water.
