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Venture capital investment continued to be strong in the third quarter of 2007, according to a pair of reports to be released on Monday. The MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Financial put third-quarter investment at $7.1 billion from 887 deals, down slightly from the prior quarter, when $7.2 billion was invested in 1,000 deals. A similar survey from Dow Jones VentureOne and Ernst & Young pegged third-quarter figures even higher, at $8.07 billion, a significant gain on the second quarter's total of $7.47 billion. Both reports said that VC investment topped $7 billion each quarter of this year, putting "2007 on track to register as the biggest year for venture capital investments since 2001," said Matthew Toole, research director of private equity at Thomson Financial. The MoneyTree Report cited a change in how venture firms are putting their money to work with a shift to later-stage deals in the third quarter. The amount of capital going into expansion-stage companies rose 16% to $2.7 billion from $2.3 billion in the second quarter, as the average deal size jumped to $9.2 million in the third quarter from $7.8 million in the second quarter. Meanwhile, capital going into seed and early-stage deals slipped 15% to $1.4 billion from 305 deals. Investment in this stage was extremely strong in the second quarter when venture capitalists invested $1.7 billion into 395 deals. Overall, seed/early-stage deals accounted for 34% of total deal volume in the third quarter; while expansion stage deals accounted for 33%. On an industry basis, software and biotech continued to be the apples of venture capitalists' eyes. Software startups garnered $1.11 billion from 187 fundings in the third quarter, down from the second quarter's six-year high of $1.5 billion going into 253 deals. Biotechnology companies pulled in $1.1 billion from 99 financings in the third quarter, down from $1.21 billion in 124 fundings the previous quarter. Not far behind were medical devices companies, which raised $825 million off of 76 deals in the quarter after getting $1.03 billion from 109 deals in the second quarter. While software and life sciences deals remain VCs' bread and butter, investment in cleantech and Internet-related startups is rising fast. Cleantech investment soared 80% from the second-quarter levels, hitting a record $844 million from 62 deals in the third quarter, while Internet-specific companies reaped $1.1 billion from 195 deals in the third quarter, a 17% increase over the second quarter, when $903 million went into 160 deals. "Investment trends reflected top issues facing the nation," commented Tracy Lefteroff, a managing partner at PricewaterhouseCoopers. "Cleantech, for example, demonstrated its viability as an emerging sector by producing three of the top five deals this quarter." "With oil at $88 to $90 a barrel, I think that a lot of these [cleantech] companies are going to become significant enterprises in their own right," he added. Geographically, the DJ/Ernst & Young report had the Silicon Valley/Bay Area getting the most capital, with $2.52 billion in the third quarter. And for the third quarter in a row the Southern California region topped New England and the New York metropolitan area for venture capital investment. Southern California startups received $961 million, topping the $849 million for New England and $672 million for New York.  Deal Video
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