Venture investors poured a total of $5.8 billion into 750 companies throughout the period of April, May and June, according to the MoneyTree Survey, a report assembled by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.
That amount is almost a fifth more than the numbers reported for the first quarter, when start-ups raised $4.9 billion, but is within the quarterly range of $4.6 billion to $6.1 billion of the past two years, the survey noted.
Most notably, later-stage funding for the quarter hit $2.4 billion, the highest dollar amount in four years, and start-up funding jumped to $1.3 billion, the highest sum in three years.
The life sciences industry regained its status as a venture capital magnet, with 154 companies in that sector attracting $1.5 billion during the quarter. Buoyed by a lot of merger activity, life sciences now counts for about a quarter of all venture capital dollars and about one-fifth of all deals, the report said. The sector also attracted a large share of first-time financing.
"Large pharmaceutical companies continue to have huge holes in their product development pipelines," Tracy Lefteroff, global managing partner of PricewaterhouseCooper's venture capital practice, said during a teleconference. "They are trying to supplement those holes by acquiring young companies that have promising products, which are at or near market approval. We think that trend will continue as time goes forward."
Three of the top 10 largest second-quarter deals were in biotechnology, according to the MoneyTree survey. They were Jazz Pharmaceuticals in Palo Alto, Calif., which raised just shy of $100 million; Esprit Pharma Holding in Princeton, N.J., which raised $58 million; and Somaxon Pharmaceuticals in San Diego, which raised $55 million.
Software was a close second, with $1.3 billion doled out to 231 companies, which is about average for the last couple of years, the report said.
Telecommunications hit a two-year high with $562 million going to 53 companies during the quarter. One company in each category appeared in the top 10 list.
They were Vonage Holdings, an Edison, N.J.-based Internet phone service that raised almost $200 million, and Omniture, a software company that develops traffic reports for online business. The Orem, Utah, company brought in $40 million.
"We are still seeing healthy interest in software and Internet-related companies, and that trend does continue," Lefteroff said.
The National Venture Capital Association said it also is encouraged by the numbers, especially by the growing interest in early stage ventures, which captured just $830 million in the first quarter of the year.
"We expect to see the scales tip towards early stage as we move through the next 18 months," said Mark Heesen, president of the association. "We are encouraged to see investment levels remain within...$4 billion to $6 billion, as this continues to reflect a sustainable pace."
A single $311 million early stage deal, the largest single round in the past five years, inflated the start-up numbers somewhat, the report noted. But even excluding that deal, which went to a financial services firm in New York called Integro, investments in early stage ventures were up. Start-ups have captured $2.1 billion, or a fifth of all U.S. venture dollars, so far this year.
Still, start-up financing is not what it once was, one venture capitalist noted.
"The early stage, both in terms of the number of deals and percentage of dollars deployed in 2005 to date, is well below what it was in the mid-'90s, so I think there's still room for early stage to grow as a percentage of overall venture activity," Shandra Bahles of El Dorado Ventures said during the teleconference.