VENTURE CAPITALISTS AND CEOS FACE ECONOMIC REALITIES IN 2012

OPTIMISM WANES FOR START-UP ECOSYSTEM

NVCA and Dow Jones VentureSource Predictions Survey Shows Enthusiasm for IT Sector
and Start-Up Company Growth Amidst Concerns About Exit Markets and Fundraising

Realism, rather than optimism, abounds for the venture capital and start-up economies in 2012, according to the results from this year’s Venture View predictions survey conducted by the National Venture Capital Association (NVCA) and Dow Jones VentureSource.

When compared to last year’s survey, forecasts from venture capital professionals (VCs) and venturebacked CEOs are less confident and more measured for the coming year, with few notable bright spots. There is considerable enthusiasm for information technology (IT) investment, particularly on the consumer side, as well as start-up company momentum, especially job growth. Yet, predictions in critical areas such as IPOs and venture fundraising are tepid at best, reflecting ongoing, unavoidable challenges faced by VCs and entrepreneurs alike.

"Due to the large number of market and political factors at play, it is incredibly difficult to predict the state of the venture capital ecosystem in 2012,” said Mark Heesen, president of the NVCA. “Despite the fact that venture capitalists and entrepreneurs are well positioned to thrive, externalities are keeping optimism at bay. The venture industry is not an island unto itself and economic instability here and abroad, coupled with a number of public policy issues poised to impact the start-up community, can offset the positives such as an improving IPO pipeline and opportunities for FDA and capital markets reform. These uncertainties are clearly to blame for the less sanguine predictions this year. However, it is encouraging to see venture capitalists and entrepreneurs forecasting a number of positives including increasing valuations, headcount, and global activity amidst the realities that face our industry."

The sixth annual Venture View survey reflects responses from more than 500 venture capital professionals and CEOs of venture-backed companies in the U.S. collected between November 30 and December 9, 2011.

CEOs More Optimistic Than VCs on Investment Levels; IT Sectors Predicted to Rise as Life Sciences and Clean Technology Decline

CEOs are more optimistic about the level of venture capital investment overall with 45 percent predicting increases in 2012 compared to 32 percent of venture capitalists who expect to see investment levels rise. Thirty-six percent of VCs see overall investment levels decreasing compared to 25 percent of CEOs.

Both groups are less bullish than they were in last year’s Venture View survey when 58and 51 percent of CEOs and VCs expected investment increases respectively. Most venture capitalists predict investment increases in consumer IT (64 percent of respondents), healthcare IT (61 percent of respondents) and business IT (50 percent of respondents). Seventy-three percent of all respondents expect investment froth in consumer IT. On the flip side, 58 percent of VC industry respondents expect investment decreases in the biopharmaceutical and medical device sectors and 55 percent expect investment levels to decline in clean technology companies.

Tougher Funding Environment for Companies and Venture Firms

Next year, there will be a seed and early stage funding shortage according to 58 percent of VCs. CEOs anticipate a difficult funding environment as well with 67 percent predicting that raising follow-on money will be equally or more difficult in 2012 than in 2011. Still, 75 percent of the CEOs plan to raise money in the coming year.

On the venture capital side, fundraising is expected to continue to be difficult with 73 percent of VCs predicting total commitments to remain the same or decline in 2012. This compares to 2011 when 62 percent forecasted stable or declining levels of fundraising. Further, 69 percent believe that limited partner agreements will favor LPs with only six percent predicting they will favor GPs.

“We can expect a competitive environment for capital on both sides of the venture business in 2012,” said Jessica Canning, global research director for Dow Jones VentureSource. “With nearly three-quarters of VCs predicting limited partners will commit the same amount or less to the industry and about the same proportion of CEOs expecting to raise money, financings could get tighter with some companies left to survive on their own.”

IPO Market Predictions Tepid; More Bullish on Acquisitions

Overall, venture capitalists are much less bullish on the 2012 IPO market with 48 percent forecasting increases in overall volume compared to 67 percent last year. Greatest gains are predicted for the technology IPO sector where 63 percent of VCs predict volume increases. Only 18 and 15 percent of VCs predict IPO volume increases in the life sciences and clean technology sectors respectively. The majority of VCs (57 percent) do not see performance improvements in venture-backed IPOs overall or in any particular sector in 2012. CEOs are making similar predictions with 49 percent predicting volume increases in venture-backed IPOs for 2012 compared to 58 percent in 2011.

Venture capitalists are more positive on venture-backed acquisitions with 69 percent of respondents predicting higher acquisitions volume and 43 percent anticipating higher acquisition quality. This is still less optimistic than in 2011 when 82 percent of VCs predicted acquisitions volume increases and 51 percent forecasted higher quality. Similarly, 76 percent of venture-backed CEOs believe there will be more acquisitions in 2012 compared to 81 percent in 2011.

Alternative Exit Activity Plans are Limited

Only 16 percent of venture-backed CEOs plan to cash out their personal equity in 2012 and just six percent plan to sell secondary shares. Yet, nearly half of the VC respondents expect more activity on the secondary market next year. In terms of actual exits, 36 percent of CEOs predict their companies will be acquired in 2012 by a public company and 22 percent forecast being acquired by a private company. Twenty-three percent think their company will acquire another company. Six percent expect to IPO in 2012.

VCs and CEOs More Bearish on Economy; See Gains in NY

CEOs are more optimistic about the U.S. economy with 53 percent expecting improvements next year compared to 47 percent of VCs. Yet, both are more bearish than they were in 2011 when 63 and 64 percent of VCs and CEOs thought the economy would improve in the coming year. Regionally, 46 percent of VCs and 41 percent of CEOs expect the New York start-up ecosystem to improve further in 2012. Both groups were less optimistic about improvements in Silicon Valley (34 percent of VCs and 42 percent of CEOs) and New England (25 percent of VCs and 34 percent of CEOs).

Global VC Investment Activity Predicted to Increase with Fewer Going to China

Fifty percent of the VC respondents will invest outside the U.S. next year with China and Western Europe being the most cited global region at 19 percent each, followed by Canada (14 percent), India (12 percent), Latin America (10 percent), Eastern Europe (7 percent), Middle East (6 percent), Africa (4 percent) and Japan (3 percent). In 2011, 47 percent of VCs planned to invest outside the U.S., though last year’s survey showed more anticipated investing in China and India at 26 and 18 percent respectively. The proportion of VCs planning to invest in Western Europe, Canada and Latin America remain essentially unchanged from 2011 predictions.

Venture Capitalists and CEOs Align on Term Sheet Expectations

The expectations of venture capitalists and CEOs regarding deal structure are converging with 53 percent of VCs and 56 percent of CEOs believing that financing terms will favor VCs over entrepreneurs in term sheet language. Last year, the two stakeholders were much further apart on this issue with 42 percent of VCs and 61 percent of CEOs believing that VCs would be favored in term sheet structures.

CEOs More Engaged in Social Media Than VCs

VC-backed companies are expected to get a great deal of social media support in 2012 as 58 percent of VC respondents expect to use social media channels to promote their portfolio companies and 56 percent intend to promote their firms in this way. Market intelligence (50 percent), publishing thought leadership pieces (39 percent) and hiring (38 percent) are other activities for which VC firms anticipate using social media next year. Twenty-three percent of VCs will not use social media at all in 2012.

VC-backed CEOs predict being more active in social media than their VC counterparts with 73 percent planning to us the channels for public relations, 64 percent for sales and marketing, 54 percent for hiring, 47 percent for market intelligence, 38 percent for publishing thought leadership pieces, and 33 percent for customer service. Only 12 percent of the CEOs do not plan to use social media next year.

Portfolio Companies Expect Good Progress in 2012

Both VCs and CEOs are optimistic about valuations in 2012 with 63 percent and 80 percent respectively expecting increases next year. Last year, 50 percent of VCs and 77 percent of CEOs expected valuations increases. Sixty-nine percent of CEOs will increase global activity at their companies next year. Eightysix percent of all venture-backed CEOs expect to increase their head count in 2012.

Romney Vs Obama in 2012 with Obama Winning by Slim Margin

The venture capital ecosystem predicts that Mitt Romney will be the 2012 Republican Presidential nominee with 79 percent of VCs and 67 percent of CEOs saying so, followed distantly by Newt Gingrich at 17 percent of VCs and 27 percent of CEOs. A second term in office for President Obama is in the cards according to 64 percent of CEOs and 56 percent of VCs.

For a copy of venture capital and CEO individual predictions, please visit:

VC Predictions

CEO Predictions

The corresponding Venture View slide deck please visit:

Sedona VC and Angel Conference

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On December 1, FundingPost will host a panel discussion with local Angel Investors and Venture Capitalists at its "Sedona VC and Angel Conference," sponsored by the Sedona Rouge Hotel & Spa. FundingPost has organized 180+ sold-out venture events over the past 10 years. Leading Venture Capital and Angel Investors are set to speak and coach entrepreneurs at the FundingPost Sedona event on December 1, at the Sedona Rouge Hotel & Spa.

Local Venture Firms will gather at FundingPost's upcoming event to discuss the trends in Early-Stage Investing, hot sectors, sectors that these Angels and VCs look at, things that are most important to them when they are considering an Investment, the best and worst things an entrepreneur can do to get their attention, additional advice for entrepreneurs, and, of course, the best ways to reach these and other Investors.

Speakers:
• Rick Gibson, Angel Investor, Desert Angels;
• Michael Wolf, Angel Investor, Lobodos Ventures;
• Peter Shaw, Principal, Shaw Management Advisors LLC (SMAI);
• Tom Kuegler, Managing Partner, Wasabi Ventures.

“We are excited about returning to the Sedona area. It’s a fantastic opportunity for an early-stage company to meet face to face with investors,” said Joe Rubin, Director, FundingPost. “Early-stage VCs are always on the lookout for great ideas, and FundingPost is proud to provide a forum for these investors to locate promising new ventures. We hear new success stories from companies raising capital at our events all the time!”

As with all FundingPost events, there will be pitching and plenty of networking time for the entrepreneurs to meet the investors during the cocktail party! There is still space available, but the seating is limited!

About FundingPost

With over 10,000 CEOs and 700 Venture Capital Funds attending events in 20 cities nationwide; a Printed Dealflow Magazine; and a deal-exchange website with over 7,700 VC and Angel Investor members and over 138,000 companies, that has, on average, made an introduction of an Investor to an Entrepreneur every business day since its inception; FundingPost believes that it is important to reach investors in every medium possible - both online and offline.

Diversity Increases Among Newer Venture Capital Professionals

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Gender Composition of Industry Remains Largely Unchanged

NVCA and Dow Jones VentureSource Release 2011 Venture Census Data

The National Venture Capital Association (NVCA) and Dow Jones VentureSource today released the results of the 2011 Venture Census survey which examines the demographic composition of the U.S. venture capital industry. Among the findings are signs of increasing ethnic diversity, especially among newer professionals, an investor base comprised mostly of men, and a loyal and stable workforce as almost half the respondents expect to be in the same role at the same firm in five years.

Conducted for the first time in 2008, this year’s Venture Census comprised responses from nearly 600 professionals in both investment roles and administrative functions such as chief financial officers and marketing and communications professionals.

Gender Composition

While 79 percent of the survey respondents were male and 21 percent were female, women were less likely to hold investment roles. Of those who identified themselves as investors, 89 percent were male and 11 percent were female. In 2008, when measured slightly differently, 86 percent of investors were male and 14 percent were female.

The life sciences and clean technology industries had the highest percentage of women investors at 18 percent and 15 percent respectively. Information technology (IT) followed with women representing 12 percent of business-to-business IT investors and 11 percent of consumer IT investors. The lowest percentage of women investors was in the non-high tech products and services sector at eight percent.

Of those respondents who were administrative professionals, 62 percent were women and 38 percent were men. The CFO position was split nearly evenly, comprised of 53 percent women and 47 percent men. The percentage of women in the industry was inversely proportional to the age ranges. Of respondents under 30 years old, 28 percent were women. Of those in their 30s, 27 percent were women; 40s and 50s, 22 percent; and over 60 years old, 13 percent.

Ethnicity and Nationality

The 2011 survey suggests that the venture industry is becoming more diverse, particularly among the newer professionals. Of the total 2011 respondents, 87 percent were Caucasian, nine percent were Asian, two percent were African American or Latino, and two percent were of mixed race. This compares to 2008 when 88 percent of all venture professionals were Caucasian, eight percent were Asian, and two percent were Hispanic and one percent were African-American.

Venture professionals who have been in the industry fewer than five years showed greater diversity: 77 percent were Caucasian, 17 percent were Asian, three percent were African American or Latino and three percent were of mixed race. In 2008, 82 percent of those with fewer than five years in the industry were Caucasian. With regards to nationality, 95 percent of the 2011 respondents were American; two percent were from Europe, one percent from Canada and one percent from Asia. In 2011, 11 percent of the respondents immigrated to the United States, a drop from 13 percent in 2008.

Work Life

Venture capitalists say they work long hours and travel regularly. Forty-four percent of those in investment roles report working more than 60 hours per week and nine percent travel more than eight nights per month. Professionals in administrative roles log fewer hours with 13 percent working more than 60 hours each week and one percent traveling more than eight nights per month.

Venture professionals tend to remain loyal to their firms. Fifty-seven percent of respondents have worked at one VC firm and 30 percent at two firms. When asked where they expect to be in five years, 49 percent of respondents expected to be at the same firm in the same role, 16 percent expected to be at the same firm in a new role and 10 percent planned to be at a new role at a new firm. Eight percent of the respondents expect to be retired of which 83 percent were over 55 years old.

Stability within the venture capital workforce comes mainly from mid-career professionals with more of the youngest and oldest groups looking to exit the asset class. In the next five years, 27 percent and 46 percents of respondents in their 20s and over 60 years old respectively plan to leave the venture industry. These figures compare to 9 percent of venture professionals in their 30s who plan to exit the asset class, 13 percent in their 40s and 19 percent in their 50s. When it comes to social media, venture professionals are most committed to LinkedIn with 85 percent identifying themselves as users. Sixty-two percent use Facebook and 30 percent use Twitter. While 33 percent read blogs, only 11 percent write them. Ninety one percent of blog writers are investors.

Eighty-one percent of respondents are married and 75 percent have children.

Education and Background

The top universities attended by the 2011 respondents were Stanford and Harvard (both at 10 percent), University of Pennsylvania (eight percent), University of California - Berkeley (five percent), MIT (four percent) and Duke, Northwestern, University of Michigan, Yale, and Columbia (each at three percent). In 2008 the top universities attended were Harvard (12 percent), Stanford (nine percent), University of Pennsylvania (eight percent), Duke (five percent) and MIT (five percent). The most common undergraduate degree earned by the respondents was in economics at 21 percent, followed by business administration at 16 percent and mechanical or electrical engineering at 13 percent. Nine percent of respondents have PhDs and 70 percent have master’s degrees. The MBA is the most prevalent degree with 49 percent earning the distinction. In 2008, 64 percent of those surveyed had master’s or PhD degrees.

The survey showed that venture capitalists have diverse employment backgrounds. Fifteen percent of investors were once a CEO or founder of a venture-backed start-up and 14 percent were the CEO of a private (non-venture-backed) or public company. Forty-four percent were employees at public companies, 28 percent worked at private (non-venture-backed) companies and 25 percent worked at venture-backed startups. Twenty-six percent were consultants, 20 percent were investment bankers, nine percent were scientists and five percent were attorneys.

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Venture Investment Into U.S. Companies Rises in Third Quarter of 2011

Dow Jones VentureSource: Early-stage investing picks up; Capital pours into consumer Internet companies; Healthcare and IT industries a mixed bag

Investors put $8.4 billion into 765 deals for U.S.-based venture companies during the third quarter of 2011, a 29% increase in investment and 8% increase in deals from the same period last year, according to Dow Jones VentureSource. The median amount raised for a round of financing during the third quarter was $6 million, up from the $5 million median a year earlier.

“Venture investment rose in the third quarter, putting the industry on pace to near pre-recession investment levels by the end of the year,” said Jessica Canning, global research director for Dow Jones VentureSource. “While it’s unclear how long venture capitalists can continue at this pace given the weak fund-raising and difficult exit environments, the increase in deal activity, especially among early-stage start-ups, shows VCs are optimistic they will be able to support the next generation of start-ups.”

Medical Device Companies Raise More Than Biopharmaceuticals for First Time Since 1998

In the third quarter, Medical Device companies raised more venture financing than Biopharmaceutical companies for the first time since 1998. Sixty-eight Medical Device deals raised $857 million, a 15% rise in deal activity and 30% increase in capital invested from the same period last year. In the Biopharmaceuticals sector, 78 deals raised $715 million, a drop in capital invested from the year-ago period when 71 deals raised $865 million.

“Although the Biopharmaceuticals sector lost its long-held place as the leader of the Healthcare industry, early-stage investment was strong, showing that investors are building a pipeline,” according to Ms. Canning. “In Medical Devices, investments were weighted toward the later-stage deals, which could be a result of concerns over the clarity of the FDA’s requirements weighing more heavily on device investors.”

Forty-two percent of Biopharmaceuticals deals went to early-stage companies and 26% of Medical Device deals went to early-stage companies.

Medical IT companies maintained the strong investment numbers seen over the last year as 24 deals raised $207 million, not far from the same period last year when 24 deals collected $182 million.

Overall, the Healthcare industry raised $1.9 billion for 184 deals, an 11% decline in capital invested and 9% increase in deal flow.

Capital Pours Into Consumer Internet Companies

Consumer Information Services, which includes online search, entertainment and social media companies, raised $1.3 billion for 104 deals during the third quarter, more than double the financing collected for 94 deals during the same period last year. Having collected $3.8 billion throughout the first three quarters of 2011, the sector is on pace to exceed the $4.2 billion companies raised in 2010.

“VCs are actively funding new Consumer Internet companies and pouring significant amounts of capital into later-stage deals, but second rounds are lagging,” said Scott Austin, editor of Dow Jones VentureWire. “If investors continue focusing on later-stage companies that would likely have exited years ago had market conditions been better, the hundreds of young Web start-ups that raised financing in the last two years will face intense competition for second rounds.”

Within the Consumer Internet sector, deal activity for young start-ups was strong as 57% of deals were seed- or first-rounds. While 30% of deals went to later-stage companies, these companies accounted for $1 billion of the $1.3 billion companies in the sector collected. Thirteen percent of deals were second rounds.

Software Keeps Investments Flowing in IT

Companies in the Information Technology industry raised $2.1 billion for 227 deals in the third quarter, a 9% increase in financing but 7% drop in deal flow. The Software sector continued to be a bright spot for IT and collected the lion’s share of investment as 165 deals collected $1.3 billion. While investments in the Semiconductors and Hardware sectors declined, deal flow for Communications and Networking companies showed some strength as 25 deals raised $354 million, up from 22 deals that raised $246 million in the same period last year.

Investment in Enterprise and Energy Start-Ups Strong

While deal flow for Business and Financial Services companies rose 7%, capital invested spiked 65% as 139 deals collected $1.5 billion. The industry’s most active investment area was Business Support Services, which is driven by interest in marketing, advertising and data management companies. Business Support Services start-ups raised $1.2 billion for 104 deals in the most recent quarter.

The Energy and Utilities industry raised $635 million for 33 deals, an increase from the same period last year when 23 deals raised $381 million. As usual, Renewable Energy companies claimed almost all of the industry’s investment as 30 deals raised $621 million.

VCs Do More Early-Stage Deals

Seed- and first-rounds accounted for 42% of deals and 21% of capital invested during the third quarter, an uptick in deal activity from the year-ago period when early-stage rounds claimed 36% of deals and 22% of capital raised. Second rounds dropped from 23% of deal activity in the third quarter of 2010 to 20% in the most recent quarter, while the proportion of capital garnered by these deals picked up slightly from 18% last year to 19% in the third quarter of 2011. Later-stage deals accounted for 37% of the quarter’s deals and 58% of total capital raised, a mild change from the same period last year when they accounted for 39% of deals and 57% of capital raised.

For information on Dow Jones VentureSource’s research methodology, visit http://bit.ly/VSFAQs. For general information about Dow Jones VentureSource, visit http://www.dowjones.com/privatemarkets.

Venture Investment Slides in Third Quarter of 2011 as Europe Reports Lowest Deal Count on Record

Dow Jones VentureSource: Investors put €951 million into European venture companies;
Consumer Web and enterprise start-ups buck downward trend

Venture capitalists put €951 million into 219 deals for European companies in the third quarter of 2011, a 12% drop in investment and 13% decline in deal flow over the same period last year, according to Dow Jones VentureSource. This marks the lowest quarterly deal count for Europe since VentureSource began tracking the region in 2000.

“The ongoing European debt crisis, drop in consumer and business confidence and general uncertainty surrounding global economic conditions continue to affect levels of venture capital financing activity in the region significantly,” said Anthony Sheldon, research manager, Dow Jones VentureSource. “With no clear indication of an improving global economic environment, it remains to be seen whether the small gains made this quarter in the consumer and business sectors are a genuine cause for optimism looking forward to 2012.”

The median size of a European venture capital deal was €2 million in the third quarter of 2011, on par with the same period in 2010.

Consumer and Enterprise Service Industries Buck Downward Trend

Consumer Services companies raised €274 million for 39 deals in the third quarter, a 12% increase in investment despite a 26% drop in deal flow.

Within the Consumer Services industry, Consumer Web companies saw a steep decline in deal flow and investment. Consumer Web companies, which include social networking and online entertainment start-ups, raised €104 million for 21 deals, a 33% drop in capital raised and 34% decline in deal activity.

The Business and Financial Services industry also saw an increase in investment despite a drop in deal flow as 26 deals raised €143 million. This represents a 13% decline in deal activity but more than double the capital collected in the same period last year.

Medical Devices Sector Offers a Bright Spot in Healthcare

As more deals for Healthcare companies went to seed and first rounds, which are less capital-intensive than later-stage rounds, investment in the industry declined 27% despite a 10% increase in deal flow. In the third quarter, 56 Healthcare deals raised €262 million.

Within Healthcare, investment in the Medical Devices sector more than doubled to €93 million as deal flow rose 71% to 24 deals.

“In the U.S., medical device investors have been voicing concerns over the clarity of theFood and Drug Administration’s requirements for the approval of devices. This could be pushing some investors to look for opportunities overseas and Europe may be benefiting from that,” said Mr. Sheldon.

As usual, the Biopharmaceuticals sector took the largest share of Healthcare investment, attracting €163 million for 29 deals, a 44% decrease in investment and 9% decline in deal flow.

IT Industry Records Lowest Quarterly Deal Count

The Information Technology industry recorded its lowest quarterly deal count as 63 deals raised €183 million, a 13% drop in deal flow and 31% drop in capital invested. The Software sector continued to be the most popular investment area within IT as 45 deals raised €107 million.

Country Perspectives

The U.K. remained the favorite destination for venture capital investment in Europe, taking 35% of overall investment and 33% of deals. Companies in the U.K raised €336 million for 73 deals, a 4% drop in deal count but a 45% increase in capital raised.
France came in second place in terms of both investment and deal flow as 39 deals raised €189 million, a 36% decrease in deal flow and 38% decline in investment.
Germany came in third as 24 deals raised €81 million. This marks a 26% decline in investment, but deal activity was nearly on par with the same period last year when 23 deals were completed.

Venture Investment in China Climbs in Third Quarter

Dow Jones VentureSource: China-based companies raised $1.3 billion through 89 deals;
IPOs dropped slightly

In the third quarter of 2011, investors put $1.3 billion into 89 deals for venture-backed companies in China, an 84% increase in investment and 19% increase in deal flow over the same period last year, according Dow Jones VentureSource. Through the first three quarters of 2011, venture investment rose though the increase was milder than that seen in the third quarter alone. During the first nine months, $4.4 billion was raised for 236 financing deals, a 13% increase in investment and 6% increase in deal flow over the year-ago period.

Initial public offerings (IPOs) of venture-backed companies dropped slightly in the third quarter as 29 IPOs raised $4.6 billion compared with 33 IPOs that raised $3.9 billion in the same period in 2010.

“With investors on pace to put a record amount of capital into Chinese companies this year, it appears that venture capitalists are focusing on rebuilding the pipeline after seeing a record 140 IPOs in 2010,” said Jessica Canning, global research director for Dow Jones VentureSource.

The median size of a venture capital deal during the third quarter of 2011 was $11.7 million, more than double the $5.1 million median in the same period last year.

Consumer Services: Most Active Industry for Investment, Least Active for Exits

The Consumer Services industry remained the most popular investment area for venture capitalists, a distinction it has held since 2005, despite being one of the least active industries for exits. Forty deals for Consumer Services companies raised $674 million in the third quarter, a significant increase from the same period last year when 22 deals raised $287 million. With two IPOs, Consumer Services tied with Healthcare for the least active industry for IPOs.

Investment in the industry was driven by interest in the Consumer Information Services sector, which includes social media, entertainment and shopping companies. These companies raised $420 million through 23 deals.

Investment & Liquidity Roundup

Industrial Goods and Materials, the most active area for IPOs, saw nine companies go public during the third quarter and 13 financing deals raise $106 million.

Driven by interest in software, Information Technology companies raised $130 million for 15 deals, almost double the number of deals and more than triple the capital raised during the same period last year. The IT industry also saw four IPOs in the third quarter.

Fueled by interest in advertising and marketing companies, the Business and Financial Services industry saw 10 financing deals raise $120 million, a 47% drop in deal flow and 36% drop in capital invested. Four Business and Financial Services companies went public in the third quarter.

In the Consumer Goods industry, nearly as many companies went public as raised capital. Five Consumer Goods financing deals raised $63 million in the third quarter and four companies held IPOs.

For information on Dow Jones VentureSource’s research methodology, visit http://bit.ly/VSFAQs. For general information about Dow Jones VentureSource, visit http://www.dowjones.com/privatemarkets

VENTURE CAPITAL RETURNS CONTINUE TO IMPROVE IN THE FIRST HALF OF 2011

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Continued Recovery is Tenuous As Exit Markets Remain Fragile

Venture capital performance continued to improve as of the second quarter of 2011 according to the Cambridge Associates U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association (NVCA). Increased returns were seen across all time horizons, with the exception of the 15-year number, and were driven by the recovering exit market and favorable valuations of companies currently in the venture capital industry portfolio. The quarter marks the first time since the third quarter of 2009 that the 10- year horizon showed a positive return.

The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,319 U.S. venture capital funds (870 early stage, 172 late & expansion stage, 274 multi-stage and 3 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2011.

“We are encouraged by the continued performance improvements that the venture industry exhibited in the first half of this year, but we remain extremely cautious as the current exit environment has threatened the asset class’s ongoing recovery,” said Mark Heesen, president of NVCA. “In order to achieve the level of historical performance that limited partners have come to expect, we must have a thriving IPO and acquisitions market, and the former essentially closed mid-August of this year. Many fine companies await the market’s strengthening so that they can access the capital needed to continue their growth trajectories.”

“Venture firms distributed more capital than they called for the third straight quarter, which is encouraging,” said Theresa Sorrentino Hajer, managing director and venture capital research consultant at Cambridge Associates. “However, since June 30, 2011, the volatility of the public markets and economic uncertainty have challenged the IPO market, which may hinder distributions in the near term. If prolonged, this uncertainty may also negatively impact private company valuations and, therefore, fund performance going forward.”

View the full, comprehensive report

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Private Equity Fund-Raising Stumbles in U.S.; European Fund-Raising Exceeds 2010 Total

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Dow Jones LP Source: Buyout funds a bright spot in both regions

U.S. private equity fund-raising slipped in the third quarter, raising concern that fund-raising is starting to lose momentum. Thanks to a strong start to the year, however, fund-raising is still on pace to top the $95.9 billion raised in 2010. According to Dow Jones LP Source, 110 U.S. private equity funds raised $24.8 billion in the third quarter, accounting for 27% of the $92.5 billion raised during the first nine months.



“Private equity fund-raising appeared to be on a steady flight back to the land of recovery during the first half of 2011,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “But recent public market volatility, concerns about Europe and a heightened sense of economic uncertainty created some turbulence in the third quarter. The pilot has now turned on the ‘fasten seatbelt’ sign and it’s still not clear whether the industry will get back to its regular cruising altitude in the fourth quarter.”

In Europe, capital committed to private equity funds has already exceeded the 2010 total. Driven by a significant uptick in buyout fund-raising, 92 European funds raised $36.8 billion through the first three quarters, more than the $32.8 billion raised throughout 2010.

“In Europe, a handful of firms raising large funds, such as BC Partners and EQT Partners, have provided some ballast to the region’s overall fund-raising levels this year,” said Ms. Kreutzer.

LPs Continue to Commit to Buyout Funds

U.S. buyout and corporate finance funds raised $66.6 billion across 139 funds during the first three quarters, a 52% increase in capital over the same period last year. Within this sector buyout and acquisition funds, which saw fund-raising more than double to $30.8 billion, and industry-focused funds, which saw fund-raising jump 69% to $19 billion, pushed up the sector’s total. Throughout the sector, small and mid-size funds continued to capture investors’ attention.

In Europe, buyout and corporate finance fund-raising doubled to $29 billion for 53 funds during the first three quarters. Within the sector, buyout and acquisition funds saw the biggest spike as funds raised more than quadrupled to $22.6 billion for 24 funds from the $5.3 billion raised for 19 funds during the first three quarters of last year.

Secondary Funds Lose Favor in the U.S., Attract Investors in Europe

U.S. funds focused on investments in the secondary market collected $3.6 billion for 13 funds during the first three quarters, a 59% drop in capital collected from the same period in 2010. The drop comes after three years of secondary funds collecting more than $10 billion annually and general partners turn their focus from raising capital to investing it.

In Europe, six secondary funds raised $4.8 billion during the first three quarters, significantly more than the $1 billion raised for two funds during the same period last year.

Funds-of-Funds Commitments Spike in U.S., Plummet in Europe

During the first three quarters, 43 U.S. funds-of-funds raised $7.4 billion, a 74% increase in capital collected from the same period last year. This is more capital than the $6.2 billion raised throughout 2010, the worst fund-raising year on record for the sector.

In Europe, five funds-of-funds collected $269 million, significantly less than the $3.3 billion put into the 13 funds during the first three quarters of last year.

Venture Capital Fund-Raising Continues to Show Signs of Weakness

In the U.S. and Europe, venture capital fund-raising was cut in half after the 2008 recession and has yet to rebound. In the third quarter, 32 U.S. funds raised $2.2 billion, a 24% drop from the same period last year. Through the first three quarters of the year, U.S. venture fund-raising was up 9% but more than half of the $10.6 billion collected for 90 funds was committed during the first quarter.

In Europe, venture capital fund-raising is on pace to set another record low as 25 funds garnered $1.8 billion during the first three quarters, a 31% drop in capital committed from the same period in 2010. In the third quarter, four funds raised $424 million.

For a complete overview of venture capital fund-raising, visit http://www.dowjones.com/pressroom/releases/2011/101011-Q3VCFund-0162.asp.

Venture Investment Into U.S. Companies Rises in Third Quarter of 2011

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Dow Jones VentureSource: Early-stage investing picks up; Capital pours into consumer Internet companies; Healthcare and IT industries a mixed bag

Investors put $8.4 billion into 765 deals for U.S.-based venture companies during the third quarter of 2011, a 29% increase in investment and 8% increase in deals from the same period last year, according to Dow Jones VentureSource. The median amount raised for a round of financing during the third quarter was $6 million, up from the $5 million median a year earlier.

“Venture investment rose in the third quarter, putting the industry on pace to near pre-recession investment levels by the end of the year,” said Jessica Canning, global research director for Dow Jones VentureSource. “While it’s unclear how long venture capitalists can continue at this pace given the weak fund-raising and difficult exit environments, the increase in deal activity, especially among early-stage start-ups, shows VCs are optimistic they will be able to support the next generation of start-ups.”

Medical Device Companies Raise More Than Biopharmaceuticals for First Time Since 1998

In the third quarter, Medical Device companies raised more venture financing than Biopharmaceutical companies for the first time since 1998. Sixty-eight Medical Device deals raised $857 million, a 15% rise in deal activity and 30% increase in capital invested from the same period last year. In the Biopharmaceuticals sector, 78 deals raised $715 million, a drop in capital invested from the year-ago period when 71 deals raised $865 million.

“Although the Biopharmaceuticals sector lost its long-held place as the leader of the Healthcare industry, early-stage investment was strong, showing that investors are building a pipeline,” according to Ms. Canning. “In Medical Devices, investments were weighted toward the later-stage deals, which could be a result of concerns over the clarity of the FDA’s requirements weighing more heavily on device investors.”

Forty-two percent of Biopharmaceuticals deals went to early-stage companies and 26% of Medical Device deals went to early-stage companies.

Medical IT companies maintained the strong investment numbers seen over the last year as 24 deals raised $207 million, not far from the same period last year when 24 deals collected $182 million.

Overall, the Healthcare industry raised $1.9 billion for 184 deals, an 11% decline in capital invested and 9% increase in deal flow.

Capital Pours Into Consumer Internet Companies

Consumer Information Services, which includes online search, entertainment and social media companies, raised $1.3 billion for 104 deals during the third quarter, more than double the financing collected for 94 deals during the same period last year. Having collected $3.8 billion throughout the first three quarters of 2011, the sector is on pace to exceed the $4.2 billion companies raised in 2010.

“VCs are actively funding new Consumer Internet companies and pouring significant amounts of capital into later-stage deals, but second rounds are lagging,” said Scott Austin, editor of Dow Jones VentureWire. “If investors continue focusing on later-stage companies that would likely have exited years ago had market conditions been better, the hundreds of young Web start-ups that raised financing in the last two years will face intense competition for second rounds.”

Within the Consumer Internet sector, deal activity for young start-ups was strong as 57% of deals were seed- or first-rounds. While 30% of deals went to later-stage companies, these companies accounted for $1 billion of the $1.3 billion companies in the sector collected. Thirteen percent of deals were second rounds.

Software Keeps Investments Flowing in IT

Companies in the Information Technology industry raised $2.1 billion for 227 deals in the third quarter, a 9% increase in financing but 7% drop in deal flow. The Software sector continued to be a bright spot for IT and collected the lion’s share of investment as 165 deals collected $1.3 billion. While investments in the Semiconductors and Hardware sectors declined, deal flow for Communications and Networking companies showed some strength as 25 deals raised $354 million, up from 22 deals that raised $246 million in the same period last year.

Investment in Enterprise and Energy Start-Ups Strong

While deal flow for Business and Financial Services companies rose 7%, capital invested spiked 65% as 139 deals collected $1.5 billion. The industry’s most active investment area was Business Support Services, which is driven by interest in marketing, advertising and data management companies. Business Support Services start-ups raised $1.2 billion for 104 deals in the most recent quarter.

The Energy and Utilities industry raised $635 million for 33 deals, an increase from the same period last year when 23 deals raised $381 million. As usual, Renewable Energy companies claimed almost all of the industry’s investment as 30 deals raised $621 million.

VCs Do More Early-Stage Deals

Seed- and first-rounds accounted for 42% of deals and 21% of capital invested during the third quarter, an uptick in deal activity from the year-ago period when early-stage rounds claimed 36% of deals and 22% of capital raised. Second rounds dropped from 23% of deal activity in the third quarter of 2010 to 20% in the most recent quarter, while the proportion of capital garnered by these deals picked up slightly from 18% last year to 19% in the third quarter of 2011. Later-stage deals accounted for 37% of the quarter’s deals and 58% of total capital raised, a mild change from the same period last year when they accounted for 39% of deals and 57% of capital raised.

For information on Dow Jones VentureSource’s research methodology, visit http://bit.ly/VSFAQs. For general information about Dow Jones VentureSource, visit http://www.dowjones.com/privatemarkets.

Rebuilding the IPO On-Ramp

Today, the IPO Task Force, a group of private sector professionals operating in the emerging growth company ecosystem, released formal recommendations to help re-energize the U.S. capital markets system. Spearheaded by former National Venture Capital Association (NVCA) chairman, Kate Mitchell, the task force authored a detailed report entitled Rebuilding the IPO On-Ramp: Putting Emerging Growth Companies and the Job Market Back on the Road to Growth which outlines three major areas in which government can help smooth the path to IPO for these important companies.

The NVCA participated on the task force and is very supportive of its efforts. The NVCA is encouraged by the interest the recommendations have generated in initial meetings with Congress, regulators and the Administration and look forward to seeing them become part of the dialogue around legislative and regulatory initiatives to address the capital markets issue.

EXECUTIVE SUMMARY

This report recommends specific measures that policymakers can use to increase U.S. job creation and drive overall economic growth by improving access to the public markets for emerging, high-growth companies.

For most of the last century, America’s most promising young companies have pursued initial public offerings (IPOs) to access the additional capital they need to hire new employees, develop their products and expand their businesses globally. Often the most significant step in a company’s development, IPOs have enabled these innovative, high-growth companies to generate new jobs and revenue for the U.S. economy, while investors of all types have harnessed that growth to build their portfolios and retirement accounts. We refer to these companies in this report as “emerging growth” companies.

During the past 15 years, the number of emerging growth companies entering the capital markets through IPOs has plummeted relative to historical norms. This trend has transcended economic cycles during that period and has hobbled U.S. job creation. In fact, by one estimate, the decline of the U.S. IPO market had cost America as many as 22 million jobs through 2009.(1) During this same period, competition from foreign capital markets has intensified. This dearth of emerging growth IPOs and the diversion of global capital away from the U.S. markets – once the international destination of choice – have stagnated American job growth and threaten to undermine U.S. economic primacy for decades to come.

In response to growing concerns, the U.S. Treasury Department in March 2011 convened the Access to Capital Conference to gather insights from capital markets participants and solicit recommendations for how to restore access to capital for emerging companies – especially public capital through the IPO market. Arising from one of the conference’s working group conversations, a small group of professionals representing the entire ecosystem of emerging growth companies – venture capitalists, experienced CEOs, public investors, securities lawyers, academicians and investment bankers – decided to form the IPO Task Force to examine the conditions leading to the IPO crisis and to provide recommendations for restoring effective access to the public markets for emerging, high-growth companies.

In summary, the IPO Task Force has concluded that the cumulative effect of a sequence of regulatory actions, rather than one single event, lies at the heart of the crisis. While mostly aimed at protecting investors from behaviors and risks presented by the largest companies, these regulations and related market practices have:

1. driven up costs for emerging growth companies looking to go public, thus reducing the supply of such companies,

2. constrained the amount of information available to investors about such companies, thus making emerging

growth stocks more difficult to understand and invest in, and
3. shifted the economics of the trading of public shares of stock away from long-term investing in emerging growth companies and toward high-frequency trading of large-cap stocks, thus making the IPO process less attractive to, and more difficult for, emerging growth companies.

These outcomes contradict the spirit and intent of more than 75 years of U.S. securities regulation, which originally sought to provide investor protection through increased information and market transparency, and to encourage broad investor participation through fair and equal access to the public markets.

To help clear these obstacles for emerging growth companies, the IPO Task Force has developed four specific and actionable recommendations for policymakers and members of the emerging growth company ecosystem to foster U.S. job creation by restoring effective access to capital for emerging growth companies. Developed to be targeted,
scalable and in some cases temporary, these recommendations aim to bring the existing regulatory structure in line with current market realities while remaining consistent with investor protection. The task force’s recommendations for policymakers are:

1. Provide an “On-Ramp” for emerging growth companies using existing principles of scaled regulation. We recommend that companies with total annual gross revenue of less than $1 billion at IPO registration and that are not recognized by the SEC as “well-known seasoned issuers” be given up to five years from the date of their
IPOs to scale up to compliance. Doing so would reduce costs for companies while still adhering to the first principle of investor protection.

2. Improve the availability and flow of information for investors before and after an IPO. We recommend improving the flow of information to investors about emerging growth companies before and after an IPO by increasing the availability of company information and research in a manner that accounts for technological and
communications advances that have occurred in recent decades. Doing so would increase visibility for emerging growth companies while maintaining existing regulatory restrictions appropriately designed to curb past abuses.

3. Lower the capital gains tax rate for investors who purchase shares in an IPO and hold these shares for a minimum of two years. A lower rate would encourage long-term investors to step up and commit to an allocation of shares at the IPO versus waiting to see if the company goes public and how it trades after its IPO. (

In addition to its recommendations for policymakers, the task force has also developed a recommendation for members of the emerging growth company ecosystem:

4. Educate issuers about how to succeed in the new capital markets environment. The task force recommends improved education and involvement for management and board members in the choice of investment banking syndicate and the allocation of its shares to appropriate long-term investors in its stock. Doing so will help emerging growth companies become better consumers of investment banking services, as well as reconnect buyers and sellers of emerging company stocks more efficiently in an ecosystem that is now dominated by the high-frequency trading of large cap stocks.

The recommendations above aim to adjust the scale of current regulations without changing their spirit. Furthermore, the task force believes that taking these reasonable and measured steps would reconnect emerging companies with public capital and re-energize U.S. job creation and economic growth – all while enabling the broadest range of investors to participate in that growth. The time to take these steps is now, as the opportunity to do so before ceding ground to our global competitors is slipping away.

For this reason, the members of the IPO Task Force pledge their continued participation and support of this effort to put emerging growth companies, investors and the U.S. job market back on the path to growth.

VENTURE CAPITAL INVESTMENTS DECLINE IN DOLLARS AND DEAL VOLUME IN Q3 2011

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Life Sciences and Clean Tech Investing Falls as Software Surges to a 10-Year High

Venture capitalists invested $6.95 billion in 876 deals in the third quarter of 2011, according to the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. Quarterly venture capital (VC) investment activity fell 12 percent in terms of dollars and 14 percent in the number of deals compared to the second quarter of 2011 when $7.9 billion was invested in 1,015 deals.

For the first three quarters of 2011, venture capitalists invested $21.2 billion into 2,725 deals, representing 20 percent more dollars and three percent more deals as the first three quarters of 2010. The Life Sciences (biotechnology and medical device industries combined) and Clean Technology sectors saw marked decreases in both dollars and number of deals while the Software sector enjoyed its strongest quarter in almost 10 years.

"Challenges in the regulatory environment for Life Sciences companies are prompting VCs to look to other industries to put their money to work for a faster return on their investment as indicated by the notable increase in Software investments," remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. “Accordingly, over the past two quarters, we've seen a clear shift in Life Sciences investments from Seed/Early Stage companies over to more Later Stage companies. VCs are continuing to support the companies in their pipeline but appear to be curbing their investments in new Life Sciences companies. Despite the dip in Life Sciences and in the overall investment total for Q3, 2011 is still on track to exceed the $23.3 billion invested in all of 2010."

“Given the tremendous impact that venture capital has on company creation, it is easy to forget that our industry is small and highly susceptible to the many market forces presently at work,” said Mark Heesen, president of the NVCA. “Public policy challenges in the life sciences and clean technology sectors are impacting investment levels this quarter as is the IPO market that basically came to a screeching halt in August. Venture fundraising levels are the lowest they have been in nearly a decade so it is reasonable to expect investment levels to decline in the coming years. Yet despite the challenges, the industry continues to fund new companies because history has shown us that innovation always prevails and there remains significant promise across all industry sectors for these emerging growth companies."

Industry Analysis

The Software industry received the highest level of funding for all industries with $2.0 billion invested during the third quarter of 2011. This level of investment represents a 23 percent increase in dollars, compared to the $1.6 billion invested in the second quarter, and the highest quarterly investment in the sector since the fourth quarter of 2001. The Software industry also had the most deals completed in Q3 with 263 rounds, which represents a one percent decrease from the 267 rounds completed in the second quarter of 2011.

The Biotechnology industry was the second largest sector for dollars invested with $1.1 billion going into 96 deals, falling 18 percent in dollars and 20 percent in deals from the prior quarter.

The Medical Devices and Equipment industry also experienced a decline, dropping 18 percent in Q3 to $728 million, while the number of deals declined 21 percent to 74 deals. Overall, investments in the Life Sciences sector (Biotechnology and Medical Devices) fell 18 percent in dollars and 21 percent in deals, dropping to the second lowest quarterly deal volume since the first quarter of 2005. To the contrary, Healthcare Services investments surged with $152 million going into 11 deals, a 200 percent increase in dollars and 38 percent increase in deal volume over the second quarter.

Investment in Internet-specific companies fell in the third quarter to $1.6 billion going into 231 deals. This level of investment represents a 33 percent decrease in dollars and a 21 percent decrease in deals from the second quarter when $2.4 billion went into 292 deals, a ten-year high. Internet-specific is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.

The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw a 13 percent decrease in dollars to $891 million in Q3 from the second quarter when $1.0 billion was invested. The number of deals completed in the third quarter also declined nine percent to 80 deals compared with 88 deals in the second quarter

Fourteen of the 17 MoneyTree sectors experienced decreases in dollars invested in the third quarter, including Telecommunications (49 percent decrease), Semiconductors (44 percent decrease), Consumer Products & Services (51 percent decrease), and Media & Entertainment (11 percent decrease).

Stage of Development

Seed stage investments fell 56 percent in dollars and 26 percent in deals with $179 million invested into 89 deals in the third quarter. Early stage investments also fell seven percent in dollars and six percent in deals with $2.0 billion going into 341 deals. Seed/Early stage deals accounted for 49 percent of total deal volume in Q3, compared to 48 percent in the second quarter. The average Seed deal in the third quarter was $2.0 million, down from $3.3 million in the second quarter. The average Early stage deal was $5.7 million in Q3, down from $5.8 million in the prior quarter.

Expansion stage dollars increased two percent in the third quarter, with $2.5 billion going into 260 deals. Overall, Expansion stage deals accounted for 30 percent of venture deals in the third quarter, up from 26 percent in the second quarter of 2011. The average Expansion stage deal was $9.6 million, up from $9.2 million in the prior quarter.

Investments in Later stage deals decreased 20 percent in dollars and 30 percent in deals to $2.3 billion going into 186 rounds in the third quarter. Later stage deals accounted for 21 percent of total deal volume in Q3, compared to 26 percent in Q2 when $2.9 billion went into 265 deals. The average Later stage deal in the third quarter was $12.5 million, which increased from $11.0 million in the prior quarter and represents the largest average deal size for Later stage companies since the third quarter of 2001.

First-Time Financings

First-time financing (companies receiving venture capital for the first time) dollars decreased 22 percent and the number of deals fell 18 percent with $1.2 billion going into 269 deals. First-time financings accounted for 17 percent of all dollars and 31 percent of all deals in the third quarter, compared to 20 percent of all dollars and 32 percent of all deals in the second quarter of 2011. Companies in the Software, Media & Entertainment, and IT services sectors received the most first time rounds in the third quarter. There was a significant decline in the number and dollar level of first time rounds in the Life Sciences sector. The average first-time deal in the third quarter was $4.5 million, down slightly from $4.7 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments, garnering 74 percent of the deals.

MoneyTree Report results are available online at www.pwcmoneytree.comand www.nvca.org.

VENTURE CAPITAL INDUSTRY RAISES $1.72 BILLION IN Q3 2011

Lowest Dollar Amount Raised Since Q3 2003

Fifty-two U.S. venture capital funds raised $1.72 billion in the third quarter of 2011, according to Thomson Reuters and the National Venture Capital Association (NVCA). This level marks a 53 percent decrease by dollar commitments and a 4 percent decline by number of funds compared to the third quarter of 2010, which saw 53 funds raise $3.5 billion during the period. U.S. venture capital fundraising during the first nine months of 2011 totaled $12.2 billion from 146 funds, a 26 percent increase by dollars compared to the nine months of 2010 and an 11 percent increase by number of funds. The third quarter marked the lowest amount raised in a quarter since the third quarter of 2003.

Fundraising by Venture Funds


Funds Capital ($M)
2007 233 30,739.7
2008 212 25,814.7
2009 153 16,191.9
2010 162 13,346.3
2011 147 12,249.7
1Q'09 58 4,945.9
2Q'09 39 4,844.2
3Q'09 34 2,332.0
4Q'09 47 4,069.8
1Q'10 45 4,033.8
2Q'10 48 2,098.4
3Q'10 53 3,593.8
4Q'10 45 3,620.3
1Q'11 46 7,634.2
2Q'11 49 2,895.7
3Q'11 52 1,719.7
Source: Thomson Reuters and National Venture Capital Association

“The quarter's low fundraising numbers are reflective of ongoing challenges within the venture capital exit markets,” said Mark Heesen, president of the NVCA. “Economic instability continues to impact the ability of venture-backed companies to go public which, in turn, has prevented many venture firms from delivering solid returns to their investors. Until we begin to see a steady and sustainable flow of quality IPOs which return cash, limited partners will remain on the sidelines and the venture industry will continue to contract. This situation is one that needs to be rectified in the near term if we want to have adequate dollars to invest in our country's startup companies in the long run.”

There were 33 follow-on funds and 19 new funds raised in the third quarter of 2011, a ratio of 1.74-to-1 of follow-on to new funds. The largest new fund reporting commitments during the second quarter of 2011 was New York-based Raine Partners which raised $72.5 million in its inaugural fund. A “new” fund is defined as the first fund at a newly established firm, although the general partners of that firm may have previous experience investing in venture capital.

VC Funds: New vs. Follow-On

New Followon Total
2007 64 169 233
2008 58 154 212
2009 39 114 153
2010 49 113 162
2011 46 101 147
1Q'09 10 48 58
2Q'09 12 27 3 9
3Q'09 12 22 34
4Q'09 12 35 47
1Q'10 14 31 45
2Q'10 16 32 48
3Q'10 19 34 53
4Q'10 13 32 45
1Q'11 13 33 46
2Q'11 14 35 49
3Q'11 19 33 52
Source: Thomson Reuters and National Venture Capital Association

Third quarter 2011 venture capital fundraising was lead by Menlo Park, California based Shasta Ventures Management & Longitude Capital Management which raised $265 & $159 million respectively for their Shasta Ventures III & Longitude Ventures Partners II Funds.

U.S. MEDICAL INNOVATION AT RISK: FEWER NEW COMPANIES AND THERAPIES RECEIVING FUNDING,

U.S. venture capitalists are decreasing their investments in biopharmaceutical and medical device companies, reducing their concentration in prevalent disease areas and shifting investment away from the United States toward Europe and Asia, according to a report released today by the National Venture Capital Association’s MedIC Coalition.

The survey of more than 150 venture capital firms identified Food and Drug Administration (FDA) regulatory challenges as the most significant factor driving away investment from startup companies that are bringing critical therapies to market. Other factors included reimbursement concerns and an adverse financial environment. The report, Vital Signs: The Threat to Investment in U.S. Medical Innovation and the Imperative of FDA Reform, strongly indicates that America’s medical innovation economy is in grave danger of losing its primary source of funding, causing serious harm to both U.S. patients and the national economy.

“For decades, the U.S. has been the leader in delivering medical innovations to our citizens due to the thousands of startup healthcare companies that have been brought to life with venture capital funding. Millions of high quality jobs have been created, and iconic companies such as Genentech, Amgen, Medtronic, Biogen-Idec and Lifescan have been built. But our leadership is now at risk,” said Dr. Beth Seidenberg, partner at Kleiner Perkins Caufield & Byers and chairwoman of the MedIC Coalition. “This report confirms what has been suspected for some time, which is that venture capitalists are shifting investment capital away from lifesaving and life-sustaining products and into areas less regulated by the FDA as well as into other countries. This trend is one that the venture industry and, we believe, the FDA, wants desperately to reverse.”

Investment Decline in Innovative New Therapies

The survey found that U.S. venture capital firms have been decreasing their investment in biopharmaceutical and medical device companies over the past three years and expect to further curtail such investment in the future. Overall 39 percent of respondent firms have decreased their investments in life sciences companies over the last three years and the same percentage expect to further decrease these investments over the next three years, some by greater than 30 percent. This is roughly twice the number of firms that have increased and/or expect to increase investment. While 40 and 42 percent of firms expect to decrease investment in biopharmaceutical and medical device companies respectively, 42 and 54 percent expect to increase their investment in non-FDA regulated healthcare services and healthcare information technology companies respectively.

In another alarming sign, survey respondents expect to see significant investment decreases in companies fighting serious and highly prevalent conditions including cardiovascular disease, diabetes, obesity, cancer, and neurological diseases.

“More than 100 million Americans suffer from diseases for which there are still no cures, or even meaningful therapeutic options. To conquer disease and relieve suffering, we must have a medical innovation pipeline that is as strong and robust as possible,” said Margaret Anderson, executive director, FasterCures. “Bringing critical therapies to market requires venture capital investment to spur a thriving life sciences industry as well as having a regulatory system that’s appropriately resourced and equipped to ensure innovation is translated to better health.”

Drivers of Investment Decisions

Among the multiple factors impacting investment decisions, FDA regulatory challenges were most frequently cited as having high and significant impact in driving these investment trends followed by reimbursement challenges. Respondents believe these challenges are primarily related to an imbalance in risk/benefit assessment, and unpredictability at the FDA.

“Venture capitalists have always embraced risk and long-term investment to fund breakthrough innovation and form great companies,” said Dr. Jonathan Root, general partner at U.S. Venture Partners and MedIC Steering Committee member. “While many factors are at work in driving away investment from U.S. medical innovation, it is the FDA approval process – and the cost, time, and unpredictability that it adds to the development of innovative products – that weighs most heavily on investors. The FDA and the Administration are already taking significant actions to reverse these trends, but we need the support of Congress to make sure these reforms are effective and lasting.”

U.S. Competitiveness and Job Creation at Risk

In response to FDA challenges, venture capitalists and the companies in which they invest are increasingly looking to Europe and Asia to bring their medical products to market. According to the survey, 36 and 44 percent of firms plan to increase investment in life science companies in Europe and Asia, respectively, while only 13 percent plan to increase in North America. Correspondingly, 31 percent of firms indicated plans to decrease investment in life science companies in North America while seven percent and zero percent of respondents plan to decrease investment in Europe and Asia, respectively. Additionally, a majority of the respondents indicated a continued trend for U.S.-based startup medical companies to seek regulatory approval and commercialization of their products outside the United States first and to establish and grow operations abroad. This major shift will reduce the availability of lifesaving and life-sustaining treatments for Americans and will result in a decrease in U.S. job creation, threatening the global leadership of the U.S. in medical innovation.

If left unaddressed, patient health care, job creation and the U.S. economy will suffer substantial further damage. Based on the survey responses, America can anticipate approximately half a billion dollars less of investment into healthcare start-up companies in the near term, placing American jobs at risk.

U.S. Game to Lose

Despite the grim prognosis, there remains an opportunity to address these challenges. Nearly all respondents indicated that FDA reform would have a significant positive impact on venture investment in 3 biopharmaceutical and medical device companies in the United States. Improvements that were favorably rated as showing promise include better predictability of decisions, increased efficiency and speed of decisions, rebalancing of risk/benefit requirements, expanded accelerated approval pathways and improved transparency in communications.

Recently, the FDA and the White House have begun a broad set of reform initiatives that are intended to address some of these problems, including new guidances on risk/benefit assessment, clinical trial design and new pathways for approval of innovative medical devices.

“The venture capital and startup communities are committed to working with lawmakers and regulators to continue to reform the FDA approval process so that Americans can have access to these important medical innovations without compromising safety,” said Mark Heesen, president of the National Venture Capital Association. “We are encouraged by our constructive dialogue with senior FDA officials, who recognize the gravity of the situation and are taking action. However, fundamental reform is urgent and will require a dedicated, bipartisan effort. We must give FDA the vital tools and resources it needs – along with a clear legislative mandate – to promote and protect the public health in a manner that encourages the development of innovative products for patients in need. We must act now or the U.S. public will lose access to breakthrough innovation at a very high cost to public health and the economy.”

For a copy of the survey data slides, please visit: http://www.nvca.org/vital_signs_data_slides.pdf

About NVCA’s MedIC Coalition

The Medical Innovation and Competitiveness (MedIC) Coalition educates policymakers on the critical role America’s medical innovation plays in the U.S. healthcare system and high quality job creation, where and how disruptive innovations are developed and the challenges currently facing the medical innovation system. MedIC educates stakeholders and policy makers and supports legislation to address the threats facing America’s medical innovation system. Founded in 2010 as a partnership between the National Venture Capital Association (NVCA), member venture capital firms and their early-stage portfolio companies, the coalition aims to preserve U.S. leadership in medical innovation and ensure that America remains the primary incubator for global innovation. MedIC is based in Washington, DC.

About NVCA

Venture capitalists are committed to funding America’s most innovative entrepreneurs, working closely with them to transform breakthrough ideas into emerging growth companies that drive U.S. job creation and economic growth. According to a 2011 Global Insight study, venture-backed companies accounted for 12 million jobs and $3.1 trillion in revenue in the United States in 2010. As the voice of the U.S. venture capital community, the National Venture Capital Association (NVCA) empowers its members and the entrepreneurs they fund by advocating for policies that encourage innovation and reward long-term investment. As the venture community’s preeminent trade association, NVCA serves as the definitive resource for venture capital data and unites its nearly 400 members through a full range of professional services. For more information about the NVCA, please visit www.nvca.org.

VENTURED-BACKED IPO ACTIVITY AT LOWEST LEVEL IN SEVEN QUARTERS

ACQUISITIONS CONTINUE TO SHOW STRENGTH AMIDST DIFFICULT ECONOMIC TIMES


Slowed by stronger economic headwinds and market volatility, venture-backed Initial Public Offering (IPO) exit activity fell significantly in the third quarter, with only 5 companies going public, down 77 percent from the second quarter 2011 and 64 percent from the third quarter of last year, according to the Exit Poll report by Thomson Reuters and the National Venture Capital Association (NVCA). By dollars, the quarter marked the weakest three-month period for venture-backed IPOs since the fourth quarter of 2009. For the third quarter, 101 venture-backed M&A deals were reported, 35 which had an aggregate deal value of $6.3 billion, up 8% over the second quarter of 2011.

“While the IPO market screeched to a halt in the second half of the 3rd quarter, the acquisitions market continued to move forward, said Mark Heesen, president of the NVCA. “Quality acquisitions continue to get done which should help venture capital firms return money to limited partners and better position themselves to raise new funds. However, current economic instability could reduce the number of high return acquisitions while keeping new IPOs at a seriously low level for the remainder of the year. Federal policymakers must address this market uncertainty if they want to fulfill the stated goal of increasing long term employment as it is these emerging growth companies that hold the key to future job creation in the United States.”




IPO Activity Overview

There were 5 venture-backed IPOs valued at $442.9 million in the third quarter of 2011, which represented a 92 percent drop in dollar value compared to the second quarter of 2011 and a 65 percent drop in dollar value from the same three months last year. Four of the five IPOs of the quarter were based in the United States, while Tudou.com (China) represented the only company based outside of the US to come to market.

Four of the five IPOs in the quarter represented the information technology (IT) sector which remains the most active sector having had fourteen of the 21 IPO exits for the second quarter as well. The only non-IT IPO of the quarter was from Skokie, IL-based Horizon Therapeutics, which raised $49.5 million July.

In the largest IPO of the quarter, Chinese Holding Company Tudou.com (TUDO) raised $174 Million on NASDAQ on August 17th. For the third quarter of 2011, all five companies listed on the NASDAQ stock exchange.

Three of the five IPOs in the third quarter, Zillow, Tangoe, and Carbonite are trading above their offering price as of September 29th, 2011. Sixty-four U.S. venture-backed companies are currently filed for an initial public offering with the SEC.

Mergers and Acquisitions Overview

As of September 30, 2011, 101 venture-backed M&A deals were reported for the third quarter, 35 which had an aggregate deal value of $6.3 billion. The average disclosed deal value was $181.3 million, up 17 percent from Q2 2011. By total disclosed deal value third quarter volume marks a 58 percent increase from the third quarter of 2010.

The information technology sector led the venture-backed M&A landscape with 86 of the 101 deals of the quarter and had a disclosed total dollar value of $3.66 billion. This was up over 33% from Q2 2011. Within this sector, Internet specific and Computer software and services accounted for the bulk of the targets with 37 and 34 transactions, respectively, across these sector subsets. For the first three quarters of 2011, venture-backed M&A activity is up 43 percent by disclosed value and down 7 percent by number of deals, compared to the first three quarters of 2010.

Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 88 percent of the total disclosed transactions during third quarter 2011. Venture-backed M&A deals returning less than the amount invested accounted for 6 percent of the quarterly total.

CANADA’S VENTURE CAPITAL MARKET IN Q2 2011: PACE OF VC INVESTED SLOWS, FUND-RAISING CONTINUES DECLINE

Commentary

In the second quarter of 2011, Canadian venture capital (VC) investment made no further advances on growth in previous quarters, and instead registered a slight drop in disbursements, in part because of stalled fund-raising activity. This was one of several findings of a statistical report released by CVCA- Canada’s Venture Capital & Private Equity Association and research partner Thomson Reuters.

According to the report, VC invested across Canada totaled $328 million between April and June, down 2% from $335 million invested the year before. Less cash went to more firms, with companies financed with VC totaling 134 in this period, up 11% from Q2 2010.

Due to a more active Q1 2011, Canadian VC deal-making showed moderate growth over the first half of the year. Dollars invested totaled $686 million at the end of June, or 10% more than the $626 million invested during the first half in 2010.

“After a period of steady, if moderate, expansion in VC invested, it is very concerning to see weaker dollar flows at this point”, said Gregory Smith, President of the CVCA and Managing Partner, Brookfield Financial. “Clearly there is demand coming from young, entrepreneurial businesses – a fact that is borne out by year-over-year growth in company financings – but this demand is not being met by an adequate supply of value-added risk capital.” added Mr. Smith.

Mr. Smith observed that VC deal capitalization levels, which are imperative to innovative businesses with the potential for high growth, have not improved, regardless of swings in overall market activity. “To date in 2011, domestic firms have captured only 36% of the dollars going to counterpart firms in the United States, which is even lower than the 38% averaged in 2010,” said Mr. Smith.

Mr. Smith singled out slow rates of VC fund-raising activity in Canada as a primary factor influencing investment trends at present. New commitments to VC funds totaled $132 million between April and June, or 57% below the $308 million committed at the same time last year. Over the first half of 2011, fund-raising was comparably sluggish, with new supply totaling $374 million, down 46%.

“The fund-raising situation continues to undermine deal-making, and impedes our capacity to draw out the natural strengths inherent in Canada’s emerging technology sectors and entrepreneurial managers,” said Mr. Smith. He added: “VC investment, which has historically been the catalyst for knowledge-based economic growth, cannot effectively do this job until we take determined steps to ensure more stable supply.”

“Given the demonstrably large contribution of VC-backed companies to Canadian growth rates, exports, and levels of R&D expenditure, a strong and well-capitalized VC fund management industry is even more important as the global economy enters a new period of uncertainty and potential contraction,” said Mr. Smith.

On a brighter note, exits from Canadian innovative companies appeared to continue at postslowdown levels in Q2 2011, with 9 liquidity events counted – including Cephalon Inc.’s acquisition of Gemin X Pharmaceuticals Inc. in April – bringing the total in the first half of the year to 14. At the same time, portfolio realizations remain skewed to strategic acquisitions, with only one VC-backed IPO reported to date in 2011.

The report found VC market trends in Q2 2011 were experienced differently by Canadian region, with 11% growth in Ontario- and Québec-based disbursements, relative to Q2 2010, but reduced activity in the West. IT sectors continued to be the focus of deal-making, taking 42% of total dollars invested in the second quarter, though VC activity in them was down 7% year over year. On the other hand, clean technology sectors saw a 17% gain in activity over the same period.

CVCA

The CVCA - Canada’s Venture Capital & Private Equity Association, was founded in 1974 and is the association that represents Canada’s venture capital and private equity industry. Its over 1900 members are firms and organizations which manage the majority of Canada’s pools of capital designated to be committed to venture capital and private equity investments. The CVCA fosters professional development, networking, communication, research and education within

Money Tree Report: Venture capitalists invested $7.5 billion in 966 deals in the second quarter of 2011.

Complete report

Venture capitalists invested $7.5 billion in 966 deals in the second quarter of 2011. Quarterly investment activity increased 19 percent in terms of both dollars and the number of deals compared to the first quarter of 2011 when $6.3 billion was invested in 814 deals. The quarterly investment level represents the highest total in a single quarter since the second quarter of 2008. The deal count for the first half of 2011 (1,780 deals) is nearly identical to that seen in the first half of 2010 (1,784 deals) while the $13.8 billion invested in the first half of 2011 represented a 12 percent increase over the $12.3 billion invested in the first half of 2010.

The Life Sciences sector (biotechnology and medical device industries combined) saw an increase in venture capital dollars invested during the second quarter, rising 37 percent in dollars and 12 percent in deal volume from the prior quarter to $2.1 billion going into 206 deals.

Investment in Internet-specific companies surged in the second quarter with $2.3 billion going into 275 companies. This level of investment represents a 72 percent increase in dollars and a 46 percent increase in deals from the first quarter when $1.4 billion went into 189 deals. The second quarter marks the most dollars going into Internet-specific companies in a decade, since the second quarter of 2001. Five of the top 10 deals this quarter, including the top two deals, were classified as Internet-specific investments, which is a discrete classification assigned to a company with a business model that is fundamentally dependent on the Internet, regardless of the company’s primary industry category.

Investments by industry Q2

The Software industry received the highest level of funding for all industries with $1.5 billion invested during the second quarter of 2011. This level of investment represents a 35 percent increase in dollars compared to the $1.1 billion invested in the first quarter. The Software industry also had the most deals completed in Q2 with 254 rounds, which represents a 25 percent increase from the 203 rounds completed in the first quarter.

In terms of dollars invested, the Biotechnology industry returned to second place, rising 46 percent from the prior quarter to $1.2 billion in the second quarter of 2011. The number of deals also rose in the second quarter, increasing 20 percent to 116 from 97 in the first quarter of 2011. The Medical Devices and Equipment industry also experienced an increase, rising 26 percent in Q2 to $841 million, while the number of deals remained relatively flat at 90 deals in Q2. This sector ranked third overall in Q2 in terms of dollars invested.

The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw a 23 percent decrease in dollars to $942 million in Q2 from the first quarter when $1.2 billion was invested. The number of deals completed in the second quarter, however increased 11 percent to 81 deals compared with 73 deals in the first quarter, marking the most active quarter for Clean Technology deals completed in MoneyTree history.

Ten of the 17 MoneyTree sectors experienced double-digit increases in dollars in the second quarter, including IT Services (19 percent increase), Media & Entertainment (27 percent), Consumer Products & Services (248 percent), and Semiconductors (22 percent increase).

Life Sciences Venture Capital Investing Leaps 37% in Q2 2011, According to the MoneyTree Report

Venture capital (VC) funding in the Life Sciences sector, which includes the Biotechnology and Medical Device industries, leapt 37 percent during the second quarter of 2011, according to a new PwC US report, "High-dollar deals." The report includes data from the PricewaterhouseCoopers LLP/National Venture Capital Association MoneyTree™ Report, based on data from Thomson Reuters.

Venture capitalists invested $2.1 billion in 206 Life Sciences deals, delivering the seventh best quarter since the MoneyTree Report began collecting data in 1995. Despite the quarter’s strong performance, dollars invested in Life Sciences declined 3 percent when compared with the same quarter of 2010. Deal volume also decreased year over year, but by a greater margin of 21 percent. Compared with the first quarter of 2011, deal volume looked more positive, showing an increase of 12 percent.

“The rise in venture capital investment going into Life Sciences during the second quarter can be attributed, in part, to an increase in exit activity,” noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC. “The exit market for biotech and medical device companies has been more active over the past year, and exit activity allows venture funds to achieve liquidity in their portfolios. This liquidity enables venture funds to return dollars to their limited partners and make additional funds available to support the rest of their portfolios.”

For all sectors, venture capitalists invested $7.5 billion in 966 deals in Q2 2011, a 5 percent increase in dollars and a 3 percent decrease in deals, compared to $7.2 billion going into 998 deals in Q2 2010. The Life Sciences share of total venture capital dollars invested slipped slightly to 28 percent in the second quarter of 2011 from 30 percent in the second quarter of 2010. The average deal size for all industries, although not as high as life sciences, increased for the third consecutive quarter and stood at $7.8 million.

In Q2 2011, Biotechnology investing declined by 9 percent in dollars and dropped 24 percent in deals year over year with $1.2 billion going into 116 deals. Medical device investments increased 9 percent in dollars and declined 17 percent in deals in Q2 2011, compared to the same quarter a year ago. With $841 million going into 90 deals, this was the highest level of funding for the Medical Device industry since the third quarter of 2008 and the seventh highest quarterly funding during the last 16 years.

First-Time Financing

During the second quarter of 2011, 44 Life Sciences companies received venture capital funding for the first time, capturing $283 million. This represents a decline of 27 percent in the number of companies and a small drop in dollars invested, compared to the second quarter of 2010. First-time deals in the Life Sciences sector averaged $6.4 million in the second quarter of 2011, a 36 percent jump year over year and significantly higher than the average first-time deal size of $4.8 million for all industries during the quarter.

“Average first-time deal size increased by 36 percent year over year, in part, because of the longer time frames that venture capitalists believe they will need for their portfolio companies to achieve significant milestones. These milestones could lead to a window of opportunity for additional financing or an exit,” added Lefteroff.

Funding by Subsegment

Two of the seven Biotechnology subsegments exhibited growth in the second quarter of 2011 compared to the second quarter of 2010. Dollars invested in the Biotech Research and Biotech Equipment subsegments rose 216 percent and 197 percent, respectively. The Human Biotechnology subsegment captured the largest share in the second quarter with $819 million going into 70 deals, a 2 percent decrease in dollars and a 21 percent decrease in deals from Q2 of 2010.

Funding for two of the three Medical Device subsegments decreased in Q2 2011, compared with the same quarter of 2010 - Medical/Health Products fell 57 percent and Medical Diagnostics dropped 7 percent in dollars. However, dollars invested in the Medical Therapeutics category increased by 33 percent during the second quarter of 2011, compared to the same time a year ago. This subsegment also accounted for nearly two-thirds of the deals and more than three-fourths of the dollars during the second quarter of 2011 with $655 million going into 59 deals.

Investments by Region

The top five metropolitan regions receiving Life Sciences venture capital funding during Q2 2011 were San Francisco Bay ($552 million), Boston ($441 million), Washington Metroplex ($210 million), San Diego Metro ($186 million), and Orange County ($157 million). Investments in Biotechnology deals accounted for 54 percent of the dollars invested in the top five regions in Q2 2011.

Except for San Francisco Bay, funding for the top regions increased on a year-over-year basis. During the second quarter of 2011, Washington Metroplex received $163 million more in venture capital funding than the same period of the previous year. This region also recorded the highest year-over-year increase among all the metropolitan regions at 344 percent.

Trends Report for the Software Industry

Berkery Noyes has released its Half Year Mergers and Acquisitions Trends Report for the Software Industry.

1st Half 2011 Key Highlights

The largest transaction in 1st Half 2011 was Microsoft Corporation’s announced acquisition of Skype Technologies SA, from an investor group lead by Silver Lake Partners, for $9.08 billion.

Google, Inc. was the most active Software Industry acquirer by volume, with nine acquisitions: SageTV, Zynamics, AdMeld Inc., PostRank Inc., Sparkbuy Inc., TalkBin, PushLife Inc., Green Parrot Pictures and SayNow.

There were 84 financially sponsored transactions in 1st Half 2011, with an aggregate value of $8.1 billion, representing 13 percent of the total volume and 15 percent of the total value, respectively.

1st Half 2011 Key Trends

Total transaction volume remained largely unchanged in1st Half 2011from 2nd Half 2010, with 651 transactions in 2nd Half 2010 and 655 in 1st Half 2011.

Total transaction value in 1st Half 2011 decreased by three percent over 2nd Half 2010 from $41.3 billion in 2nd Half 2010 to $40.1 billion in 1st Half 2011.

Median multiples increased in 1st Half 2011 from 2nd Half 2010. Median revenue multiples rose 16 percent from 1.8 to 2.1, and median EBITDA multiples rose 13 percent from 12.2 to 13.8, which represents the fourth consecutive increase in median EBITDA multiples. Median transaction value has made a similar increase.

M&A Market Overview

Berkery Noyes tracked 2727 transactions between 2009 and 1st Half 2011, of which 929 disclosed financial terms, and calculated the aggregate transaction value to be $120.7 billion. Based on known transaction values, BN projects values of 1796 undisclosed transactions to be $28.2 billion, totaling $148.8 billion worth of transactions tracked over the past two and a half years.

Disclosed median enterprise value multiples between 2009 and 1st Half 2011 for all segments combined in this report were 11.8 times EBITDA and 1.79 times revenue.

The most active market segment that Berkery Noyes tracked between 2009 and 1st Half 2011, in both value and volume, was Niche Software with 1310 transactions with an aggregate value of $54.9 billion.

Half Year Mergers and Acquisitions Trends Report for the Media & Marketing Industry

Berkery Noyes has released its Half Year Mergers and Acquisitions Trends Report for the Media & Marketing Industry.

1st Half 2011 Key Highlights

The largest transaction in 1st Half 2011 was West Australian Newspapers Limited’s acquisition of Seven Media Group from an investor group including Kolhberg Kravis Roberts, for $4.1 billion.

Publicis Groupe SA was the most active acquirer in 1st Half 2011, with 12 purchases: Genedigi Group, Rosetta Marketing Group, LLC, Dreams Communication, Tailor Made, GP7, Watermelon Healthcare Communications, Airlock, Kitcatt Nohr Alexander Shaw Ltd, Interactive Communications Ltd, Holler Digital Ltd., Chemistry Communications Group plc and Klapp Media AS.

There were 75 financially sponsored transactions with a projected aggregate value of $7.87 billion, representing 12 percent of the total volume and 25 percent of the total value, respectively.

1st Half 2011 Key Trends

Total transaction volume in 1st Half 2011 increased by 14 percent over 2nd Half 2010, from 563 in 2nd Half 2010 to 644 this year.

Total transaction value in 1st Half 2011 increased by 67 percent over 2nd Half 2010, from $17.3 billion in 2nd Half 2010 to $28.9 billion this year.

The segment with the largest increase in volume in 1st Half 2011 over 2nd Half 2010 was Internet Media with a 37 percent increase, from 182 to 250 transactions.

M&A Market Overview

Berkery Noyes tracked 2518 transactions between 2009 and 1st Half 2011, of which 640 disclosed financial terms, and calculated the aggregate transaction value to be $95.8 billion. Based on known transaction values, BN projects the value of the 1878 undisclosed transactions to be $20.3 billion, totalling $116.1 billion worth of transactions tracked over the past two and a half years.