Spending patterns

2 February 2007

If you're looking for capital for a life sciences, Internet software, wireless or clean energy venture, you're in luck - the VC community has got your sector firmly in its sights.

On the other hand, if you're spending your time developing networking software, computers or peripherals - well, let's just hope you've got a great idea to sell, because things are looking a little slower.

These were some of the conclusions from last week's MoneyTree Report into 2006 VC expenditure in the US. Celebrating the highest level of investment since the height of the dot com boom in 2001 - $25.5bn in 3,416 deals - it pointed to a healthy ten per cent increase in deal volume and a 12 per cent jump in actual dollars.

But what's more interesting than the total values is where the money went. The report - published by PricewaterhouseCoopers and the US National Venture Capital Association, using data from Thomson Financial - names life sciences as the top sector, accounting for $7.2bn or 28 per cent of total VC investment, up from $6bn in 2005. Both biotech and medical devices showed record highs.

Other strong performers included Internet-specific companies - those whose business model is fundamentally based on the Internet - which climbed from $3.2bn in 2005 to $4bn last year. Although the level of spend there is not up to the heady heights of the boom years, it suggests that the 'Web 2.0' era has well and truly arrived. Telecom companies ate up $2.6bn, with wireless accounting for 44 per cent of that. And the industrial/energy sector more than doubled to $1.8bn, reflecting the current rush to clean tech - some 40 per cent of the investment went on alternative energies. The media and entertainment sector also climbed from $1bn to $1.6bn.

Elsewhere, software investing remained huge at $5bn, but growth was relatively flat compared to last year's $4.8bn. And some sectors saw investment fall, including networking and equipment, and computers and peripherals.

Statistics always have to be handled with care, of course, and there are some caveats for London tech companies. For one thing, the European investment scene doesn't precisely mirror the US, given the different evolutionary cycles in sectors such as wireless. And of course, past performance is no guarantee of future results, as the legal beagles say. But that aside, if you're planning to get your hands on someone else's money tomorrow, it's always helpful to know who's convincing them to hand over the dosh today.

By Keith Rodgers, Webster Buchanan Research