US venture capitalists reversed a three-year downward trend by investing $20.9 billion into 2876 deals in 2004, according to the annual MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.
The annual investment level fell every year beginning in 2001, culminating in a six-year low of $18.9 billion in 2003. The increase in 2004 was largely attributable to late stage investments jumping to $7.2 billion in 2004 compared to $4.9 billion in 2003.
Mark Heesen, president of the National Venture Capital Association, says: "The strengthening IPO and acquisitions markets clearly helped fuel late stage financings in 2004. Now, as venture capitalists are beginning to invest their new funds, we may well see a shift in focus back to early stage companies in the coming year."
Late stage financing is generally done in contemplation of an upcoming sale or IPO, suggesting a continued strengthening of the exit opportunities in 2005.
While life sciences continue to dominate the field, capturing 27% of all venture capital dollars, funding for the software industry hit a three-year high with $5.1 billion. In terms of number of deals, software was far and away the leader with 862 fundings, or 30% of all venture capital deals for the year.
Much of the investment represents a renewed enthsiasm for Internet-related opportunities, with a third of all funding directed at dot.com companies. Options Express, the online options trading company was among the top three companies for VC investments last year, scooping $88 million in financing.
Looking ahead to 2005, the survey suggests continuing support for companies seeking late-stage financing and a growing investor appetite for start-up financing. Expansion funding is likely to remain flat.