U.S. VENTURE INVESTMENT STRUGGLES IN THIRD QUARTER

Dow Jones VentureSource: Business and consumer services, healthcare, and energy decline; IT remains steady

U.S.-based companies raised $6.9 billion from 820 venture capital deals during the third quarter of 2012, a 32% drop in capital and a 9% decline in the number of deals compared to the same quarter last year, according to Dow Jones VentureSource.

During the first three quarters of 2012, venture capital investment totaled $22.8 billion for 2,525 deals, a 15% and 3% decline in capital and deals, respectively, compared to the same time frame a year ago.

“Past trends have proven the resilience of the venture capital industry,” said Maryam Haque, senior research analyst for Dow Jones VentureSource. “While the industry had a shaky third quarter and the year is off pace from 2011, investors continuing to put their faith into early stage rounds show signs of encouragement.”

The median amount invested in a financing round was $3.7 million in the third quarter of 2012, much less than the $5.7 million median from the same quarter last year and the lowest since 1997.

Google Ventures led the pack for investments in U.S.-based companies. The venture arm participated in 21 deals during the third quarter, including eight for software companies and five in the business support services sector.

Late-stage deals comprise majority of invested capital; first rounds account for most deals

Though later-stage deals accounted for 61% of the capital invested in the third quarter, first rounds accounted for the largest proportion of deals, 39%, or 309. However, this corresponded to a 33% decline from the third quarter of 2011, when the same number of first round deals raised $1.9 billion in capital.

Business and financial services decline overall, but bright spot within financial services segment

Investments in business and financial services raised $1.2 billion for 126 deals in the third quarter, a 35% drop in capital and a 25% decline in the number of deals compared to the same quarter last year.

Within the industry, investment in financial institutions and services segment suffered an 11% drop in the number of deals, but saw a 43% increase in capital, largely attributed to Square Inc., a provider of mobile phone payment solutions, which had the largest investment of the quarter. The company garnered $175 million in a later stage round with institutional investors, as well as a $25 million corporate investment from Starbucks Corp.

Consumer services regresses

After a strong second quarter, investment in consumer services regressed and is off pace for the year. Capital raised fell to $1.2 billion for 158 deals, a 38% drop in capital and an 8% decline in deals compared to the same quarter last year.

“Investors have been stingier with their capital than they were last year, partly due to Web start-ups needing less cash to get off the ground,” said Zoran Basich, editor of Dow Jones VentureWire. “Especially in an area like consumer services, investors are able to place much smaller bets in the early stages.”

IT investments remain strong, particularly in software

Information Technology (IT) continues to attract the largest bulk of investors, accounting for 33% of the investment and 35% of the transactions during the third quarter of this year.

IT companies raised $2.3 billion for 290 deals in the third quarter of 2012, a 2% drop in capital but a 3% increase in deal flow as compared with the same quarter last year. Software continued to comprise the majority of the deals, garnering $1.6 billion in capital from 230 deals, which corresponded to 14% and 10% increases, respectively, from the same time frame last year.

Healthcare struggles, biopharmaceuticals showing signs of relief

Healthcare companies raised $1.6 billion for 171 deals in the third quarter, a 26% decline in capital and a 15% decline in deals compared with the same quarter last year.

Biopharmaceutical companies showed signs of relief after a poor start to the year and was one of the only industries to have a positive quarter. Within the healthcare sector, which also includes healthcare services, medical devices and equipment, and medical software and information services, only biopharmaceuticals saw an increase in investment. Biopharmaceutical companies

raised $788 million in 70 deals, an 8% increase in capital from the third quarter last year despite a 9% drop in the number of deals.

Energy continues to slump

Investment in energy and utilities saw the most significant drop among all segments. The segment, which had the worst quarter since the first quarter of 2006, raised $169 million for 19 deals in the third quarter, an 86% decline in capital and a 54% decrease in the number of deals compared to third quarter last year.

Investment in renewable energy continued to account for the greatest number of deals within the energy group, raising $162 million through 12 deals.

Australian Private Equity Outperformed S&P/ASX 300 Index by 10% for the 12 Months to Q2 2012

The Cambridge Associates LLC Australia Private Equity and Venture Capital Index (C|A Australia Index) rose by 2.95% (net of fees) in the twelve months leading to 30 June 2012, according to the latest quarterly report released by The Australian Private Equity and Venture Capital Association Ltd (AVCAL) today.

The C|A Australia Index outperformed the S&P/ASX 300 Accumulation Index (ASX 300) by 10% over the same period.

For the quarter ending 30 June 2012, the C|A Australia Index dipped by 0.28%, breaking five consecutive quarters of positive returns. Nevertheless, this was still 4.74% in excess of the ASX 300 Index's return of -5.02%.

The C|A Australia Index's medium to long term results remained steady, with annualised returns of 9.08%, 1.76% and 6.60% over the 3-, 5- and 10-year horizons respectively. In contrast, the ASX 300's returns fluctuated between 5.56%, -4.15% and 6.94% over the corresponding horizons.

In the twelve months leading to 30 June 2012, a total of AU$2.3B was distributed back to LPs while $1.6B was drawn down. Over this period, distributions peaked in Q4 2011, followed by a deceleration in Q1 2012, before picking up again in Q2 2012.

Australian Private Equity & Venture Capital Association (AVCAL) CEO Dr Katherine Woodthorpe said, "We are really pleased to see how the numbers demonstrate the stable, long term value generated by private equity in their investors' portfolios."

"And, contrary to the idea that private equity performance numbers were artificially stabilised during the global financial crisis by 'stale' prices carried forward in private equity portfolios, we now have several years' worth of post-crisis exits data, and it can be seen that private equity returns as a whole have consistently done well over the years compared to listed markets on a net cash-on-cash basis."

Eugene Snyman, Managing Director at Cambridge Associates' office in Sydney, Australia, said: "Following the slight decrease in distributions to LPs in the first quarter of 2012, the increase in Q2 will likely come as good news to investors. That said, this minor volatility in distributions is not a concern as Australian private equity continues to deliver steady long-term value."

The report is published on the AVCAL website www.avcal.com.au.

Cambridge Associates LLC Australia/AVCAL Index Returns for the period ending 30 June 2012
Index (A$)	1-Quarter		YTD		1-Year		3-Year		5-Year		10-Year
Cambridge Associates LLC Australia Private Equity & Venture Capital Index (A$)1	(0.28)		1.23		2.95		9.08		1.76		6.60
Cambridge Associates LLC Australia Private Equity & Venture Capital Index (US$)1	(1.32)		1.12		(1.91)		17.71		6.29		12.31
S&P/ASX 300 Index	(5.02)		3.13		(7.01)		5.56		(4.15)		6.94
S&P/ASX Small Ordinaries Index	(15.30)		(2.61)		(14.61)		3.39		(8.89)		6.67
UBS Australia Bank Bill Index	1.05		2.18		4.69		4.52		5.27		5.44
UBS Australian Composite Bond Index	4.57		5.39		12.41		8.57		8.17		6.79

The Cambridge Associates LLC indices are an end-to-end calculation based on data compiled from 57 Australia private equity and 22 Australia venture capital funds, including fully liquidated partnerships, formed between 1997 and 2012.

¹ Pooled end-to-end return, net of fees, expenses, and carried interest.

Sources: Cambridge Associates LLC, Bloomberg L.P., Standard & Poor's, Thomson Reuters Datastream, UBS AG and UBS Global Asset Management.

About Cambridge Associates

Founded in 1973, Cambridge Associates is a provider of independent investment advice and research to institutional investors and private clients worldwide. Today the firm serves over 900 global investors and delivers a range of services, including investment consulting, outsourced portfolio solutions, research services and tools (Research Navigator^sm and Benchmark Calculator), and performance monitoring, across all asset classes. The firm compiles the performance results for over 5,000 private partnerships and their more than 65,000 portfolio company investments to publish its proprietary private investments benchmarks, of which the Cambridge Associates LLC U.S. Venture Capital Index^® and Cambridge Associates LLC U.S. Private Equity Index^® are widely considered to be among the standard benchmark statistics for these asset classes. Cambridge Associates has more than 1,000 employees serving its client base globally and maintains offices in Arlington, VA; Boston; Dallas; Menlo Park, CA; London; Singapore; Sydney; and Beijing. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information about Cambridge Associates, please visit www.cambridgeassociates.com.

About AVCAL

AVCAL is the voice of venture capital (VC) and private equity (PE) in Australia. Our membership includes 54 domestic and international VC and PE managers active in Australia as well as pension/super funds, service providers and other stakeholders. AVCAL is active in communicating, researching and advocating the significant contribution that VC and PE makes to the broader Australian economy. Australian VC and PE firms manage over $29bn in funds under management. They provide capital and expertise to companies in a range of business life-cycles: start-ups, SMEs and large organisations. AVCAL VC and PE members focus on enhancing innovation, productivity, entrepreneurial activity and sustainability in the companies they invest in. Australian VC and PE firms back more than 500 companies which employ over 100,000 full-time equivalent jobs. Since records began in the late 1990s, the industry has distributed around A$16 billion to its limited partner investors which include pension/super funds, institutions and governments.

www.avcal.com.au www.twitter.com/avcal1 www.linkedin.com/in/avcal

Corporations Embrace Venture Capital

With Traditional R&D Yielding Diminishing Returns, a Growing Number of Companies Are Turning to Venturing for Game-Changing Ideas as Well as Financial Gains, According to a New Report by The Boston Consulting Group

Corporate venture capital (CVC) investing is back in style, and this time it's here to stay. A host of new industries are rushing to join the game, and CVC veterans and newcomers alike are forming cross-industry networks to fund promising start-ups, according to a new report by The Boston Consulting Group (BCG), "Corporate Venture Capital: Avoid the Risk, Miss the Rewards."

Corporate venture activity has accelerated in recent years, the report says. Once almost exclusively the stronghold of innovation-intensive industries such as technology, pharmaceutical, telecommunications, and media and publishing, CVC is being embraced by industries that once shunned the activity. Senior executives in several industries have told BCG that they regard venturing as an indispensable tool for innovation and development -- an assertion borne out by comparing their internal R&D spending with their venture investing. Across the board, corporate R&D spending as a percentage of sales is declining even as companies intensify their venture activities.

"Venture investing is, of course, an inherently risky activity," said Alexander Roos, a BCG partner and coauthor of the report. "But considering the disruptive potential of the innovations emerging from start-ups, the greater risk is not to invest at all."

Since the 1960s, CVC has cycled through three distinct boom-and-bust periods, with the bust coming each time as a result of financial-market or macroeconomic downturns. Now a fourth growth phase is under way, leading some observers to suggest that history is repeating itself. BCG argues otherwise, citing compelling evidence that CVC, once an experiment, has entered a new, more mature phase. Not only are new industries entering the arena, but the life spans of corporate venture units have increased steadily in the past ten years. For example, the length of time that CVC units in the pharmaceutical industry have been in continuous existence increased by 50 percent from 2002 to 2012, while the average lifetime of consumer industry CVC units has lengthened to 4.9 years in 2012 from 1.5 in 2002.

What's more, corporate venture investing has spread geographically beyond the U.S. and Europe to vibrant, fast-growing emerging markets. In the first half of 2012, for example, the dollar value of consumer industry venture investments in China rose 18 percentage points, to 63 percent, from the second half of 2010, while U.S.-focused investments shrank by 14 percentage points, to 20 percent.

The report takes a comprehensive view of the CVC landscape, analyzing the industries and companies engaging in venture investing as well as the industries and regions where they are focusing their capital.

New Players Are Joining the Game

Today, more than 750 corporations around the world have CVC units in operation, according to the report, citing the definitive database of Global Corporate Venturing, a leading industry publication. Between July 2010 and June 2012, these corporations engaged in more than 1,300 transactions. Analysis of the data reveals that corporations and industries with a long history of venturing are stepping up their presence in the field, while sectors that went largely unrepresented in earlier decades are also entering the arena. To gain a sense of the evolution of corporate venturing, BCG compared the venturing activities of four of the traditional industries (technology, pharmaceutical, telecommunications, and media and publishing) with those of four relative newcomers (machinery, power and gas production, consumer, and construction).

The Pressure to Innovate Is Fueling the Surge

The comparison shows that venture investing is taking root across a broad range of industries. Within the traditional sectors, the percentage of the 30 largest companies with dedicated CVC units has been climbing steadily since at least 2007. In three of four sectors (pharmaceutical, telecommunications, and technology) more than half of the 30 largest companies have such units in place -- a sign of the growing recognition of CVC's value as a tool for innovation, corporate development, and competitive advantage.

The same pattern holds, on a smaller scale, in those industries that have traditionally been less reliant on pure innovation to drive growth. "In recent years, these industries have come under growing pressure to innovate in response to demands for cleaner technology, more sustainable operations, and an improved user experience," said Dinesh Khanna, a BCG partner and coauthor of the report. "As a result, they are looking past internal R&D toward other innovation channels." Starting from a very low level, CVC concentration in all four newcomer industries in the comparison increased markedly from 2007 to 2012.

The Search for Disruptive Technologies Is On

As CVC expands beyond its traditional strongholds, the investment focus is widening as well. Corporate investors are looking beyond their core businesses toward sectors such as clean technology, which has the potential to disrupt industries ranging from power generation to building materials to transportation. Industrial companies, for example, are spreading their investments widely but maintaining a focus on related sectors; they invested in clean technology (the target of more than half of industrial CVC investment), information technology, health care, and transportation. CVC units in the chemical sector, meanwhile, diversified away from the core toward targets in the clean technology, health care, and industrial sectors, where they are seeking, for example, to exploit the potential for biochemical processes to supplant petrochemical ones. Overall, the most popular investment targets, measured by total number of transactions, were in IT, health care, media and publishing, and clean technology.

In addition to seeking opportunities outside their industry, corporate investors are deploying their capital outside the U.S. The data reveal that while the geographical investment focus varies widely by industry, corporate investors in most sectors are, in one fashion or another, directing much of their capital toward emerging markets. CVC investors are also increasingly willing to co-invest with other companies.

One of the most active networkers is General Electric. In clean technology, for example, GE is partnering with 13 corporate investors, 7 of them representing other industrial sectors. It is connected with Google through the two companies' investments in CoolPlanetBioFuels, for instance, and with Asahi Glass through common investments in Envia Systems.

The Old Rules Still Apply

The most successful CVC units are guided by distinct ground rules that dictate how those units define both their operating principles and their strategy, how knowledge is captured and transferred, how corporate assets are leveraged, and how venturing teams are staffed:

*Operating Principles. Leading CVC units have clearly defined investing parameters. Corporate leadership has committed to venturing for the long term, with the understanding that venture investors, by definition, take risks and that the occasional failure is the cost of doing business.

*Strategy. Befitting their key role in the innovation management effort, successful CVC units are tightly aligned with their corporate parents' overall business and innovation strategies.

*Knowledge Transfer. Companies with high-performing venture units often designate specific business units to serve as "guardians" of individual investment targets. "The guardians are responsible for ensuring that the knowledge gathered from target investments feeds directly and reliably into the larger corporation-wide innovation pipeline," said Michael Brigl, a BCG principal and coauthor of the report.

*Leverage of Existing Assets. Successful CVC units also make the most of their corporate resources. Some corporations, for example, give researchers from target companies access to their laboratories, while others contribute manufacturing expertise, offer broader distribution of the target company's products, or provide administrative support for patent applications.

*Staffing. Finally, proven venturing performers pay close attention to staffing issues, choosing team leaders who combine broad familiarity with the VC landscape with deep understanding of the corporation's strategy and processes.

VENTURE-BACKED IPO VOLUME FLAT IN THIRD QUARTER OF 2012

Technology M&A Exits Boosts Q3 Value As Volume Slips Venture-backed initial public offerings (IPOs) raised $1.1 billion from 10 offerings during the third quarter of 2012, experiencing a slight decline in volume from the second quarter of this year but more than doubling activity seen during the third quarter of 2011. Total IPO value also increased from the third quarter of 2011 while falling well short of the second quarter 2012 value due to the record-breaking offering from Facebook in May. For the third quarter of 2012, 96 venture-backed M&A deals were reported, 30 which had an aggregate deal value of $7.6 billion, a 30 percent increase from the second quarter of 2012, according to the Exit Poll report by Thomson Reuters and the National Venture Capital Association (NVCA). “While the 2012 year-to-date IPO volume is in line with last year, the similarities are not particularly welcome,” said Mark Heesen, president of the NVCA. “Once again we are dealing with major uncertainty regarding how the Administration and the Congress will deal with the impending fiscal cliff, a wild card that could continue to impact IPOs this Fall. Further, we could see this environment slow acquisitions as well, with corporate acquirers waiting for the election outcomes and more stability to buy those companies that will advance their innovation strategies. These exit numbers should put Washington policymakers on notice that they must come together on these pressing fiscal matters to give businesses and the markets the confidence needed to move forward.” IPO Activity Overview There were 10 venture-backed IPOs valued at $1.1 billion in the third quarter of 2012. By number of deals, quarterly volume fell 9 percent from the second quarter of this year but more than doubled the value registered during the third quarter of 2011. Six of the 10 IPOs of the quarter were IT-related IPOs representing 60 percent of the total issues for in the quarter. By location, all of the quarter’s 10 IPOs were by U.S.-based companies with six coming from the state of California. In the largest IPO of the quarter, Palo Alto Networks (PANW), a Santa Clara, California-based network security company, raised $260 million and began trading on the New York Stock Exchange on July 19th. For the third quarter of 2012, seven companies listed on the NASDAQ stock exchange and three companies listed on the New York Stock Exchange. Nine of the 10 companies brought to market this quarter are currently trading above their offering price. There are 28 venture-backed companies currently filed publicly for IPO with the SEC. This figure does not include confidential registrations filed under the JOBS Act. Mergers and Acquisitions Overview As of September 30th, 96 venture-backed M&A deals were reported for the third quarter of 2012, 30 of which had an aggregate deal value of $7.6 billion. The average disclosed deal value was $253.3 million, a 26 percent increase from the second quarter of 2012. The information technology sector led the venture-backed M&A landscape with 70 of the 96 deals of the quarter and had a disclosed total dollar value of $5.6 billion. Within this sector, Computer Software and Services and Internet Specific deals accounted for the bulk of the targets each with 29 transactions across these sector subsets. Three billion-dollar venture-backed M&A deals were completed during the third quarter of 2012, led by VMWare’s $1.26 billion purchase of Nicira Networks, Microsoft’s $1.2 billion bid for Yammer Inc and Facebook’s $1.0 billion offer for Instragram, Inc. Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 52 percent of the total disclosed transactions during third quarter of 2012, on par with the second quarter of this year. Venture-backed M&A deals returning less than the amount invested accounted for 22 percent of the quarterly total.

VENTURE CAPITAL FUNDS RAISED $5.0 BILLION DURING Q3’12

Number of Funds Increased 23 Percent Compared to Second Quarter

Fifty-three U.S. venture capital funds raised $5.0 billion in the third quarter of 2012, according to Thomson Reuters and the National Venture Capital Association (NVCA). This level marks a 17 percent decrease by dollar commitments and a 23 percent increase by number of funds compared to the second quarter of 2012, which saw 43 funds raise $6.0 billion during the period. The top five venture capital funds accounted for 55 percent of total fundraising this quarter, compared to 80 percent during the second quarter of 2012. Venture capital fundraising for the first nine months of 2012 totaled $16.2 billion, a 31 percent increase by dollar commitments compared to the first nine months of 2011 ($12.4 billion) despite a 13 percent decline by number of funds.

““While the dollars raised this quarter fell from Q2, we were encouraged by the increase in the number of firms who were successful in raising venture funds,” said Mark Heesen, president of the NVCA. “For the last several years we have watched carefully the consolidation of dollars into the hands of fewer firms. While more than half of the dollars raised this quarter were placed in five funds, it was less concentrated than previous quarters and allows for the disbursement of capital across a more diverse base of funds. We are hopeful that this uptick is not an anomaly, but demonstrates greater confidence by our limited partners in the asset class as a whole.”

There were 37 follow-on funds and 16 new funds raised in the third quarter of 2012, a ratio of 2.3-to-1 of follow-on to new funds. The largest new fund reporting commitments during the third quarter of 2012 was from San Francisco, California-based Forerunner Partners I, L.P., which raised $41.7 million for the firm’s 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.

Third quarter 2012 venture capital fundraising was lead by Menlo Park, California-based Sequoia Capital U.S. Growth Fund V, L.P. which raised $950 million and GGV Capital IV, L.P. and New Enterprise Associates 14, L.P., which raised $565 million and $524 million, respectively.

VENTURE CAPITAL INVESTMENTS DECLINE IN DOLLARS AND DEAL VOLUME IN Q3 2012

Technology Investing Remains Solid as Life Sciences and Clean Tech Continue to Adjust to Market Conditions

Venture capitalists invested $6.5 billion in 890 deals in the third quarter of 2012, 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 declined 11 percent in terms of dollars and five percent in the number of deals compared to the second quarter of 2012 when $7.3 billion was invested in 935 deals.

Investment for the first three quarters of the year was $20 billion into 2,661 deals, a level well below this point last year, making it likely that 2012 will fall short of 2011 in terms of both dollars and deal volume.

"The decline in funding for Seed/Early stage companies is firmly in place - we've seen a drop in dollars and deals both quarter-over-quarter and year-over-year," remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. "We're seeing fewer new venture funds being raised which means less capital is available for new investments. And, we're seeing venture capitalists be very cautious with the capital that is available due to the lack of a significant number of liquidity events. Instead, venture capitalists are continuing to support the companies already in their portfolio."

“The third quarter numbers tell a story consistent with investment themes we have been seeing throughout 2012,” said Mark Heesen, NVCA president. “Information technology investment continues to be very strong, particularly in the Internet arena while life sciences investment remains low, reflecting ongoing concerns regarding regulatory uncertainty, capital intensity and investment time horizons in the space. We also continue to see clean tech investment shifting concentration to smaller, more capital efficient deals. Opportunities continue to abound in each of these sectors, but lower venture fundraising levels will push investment dollars down as the industry recognizes it cannot put out more money than it takes in.”

Industry Analysis

The Software industry received the highest level of funding for all industries with $2.1 billion invested into 304 deals during Q3, marking the fourth quarter in the last five in which investment in Software exceeded two billion dollars. This level of investment represents a 12 percent decline in dollars and a one percent increase in deal volume from the second quarter when $2.4 billion was invested in 300 deals.

Life Sciences (Biotechnology and Medical Devices) investing increased in terms of dollars but declined in deal volume for the third quarter of 2012 with $1.7 billion going into 181 deals, comprising 26 percent of VC dollars invested. Investment in Biotechnology increased by 64 percent in terms of dollars and 22 percent in terms of deals with $1.2 billion going into 116 companies in Q3. This increase is driven by a number of larger, follow-on rounds in the third quarter compared to Q2 when just $755 million went into 95 companies. Medical Device investing declined for the third consecutive quarter, falling 37 percent in dollars and 27 percent in deal volume with $434 million going into 65 companies, experiencing the lowest dollar level of investment since 2004. Overall, Life Sciences investment for the first three quarters of 2012 is down 19 percent in dollars and 12 percent in deals from the same time period in 2011.

Internet-specific investing fell 12 percent in dollars and eight percent in deals from the previous quarter with $1.7 billion going into 250 deals but remained well above the billion dollars per quarter level that has been prevalent for the last two years. Additionally six of the top 10 deals for the quarter were in the Internet-specific category. '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, also saw a 20 percent decrease in dollars but a two percent increase in deal volume with $791 million going into 58 deals during the third quarter compared to $991 million going into 57 deals in the second quarter. The dollar decrease in Q3 occurred despite the fact that three of the top ten deals fell into the Clean Tech category, suggesting most of the remaining deals of the quarter were comprised of smaller rounds.

Seven of the 17 MoneyTree sectors experienced increases in dollars invested in the third quarter, including Financial Services, Healthcare Services, Business Products and Services and Retailing.

A total of 10 of the MoneyTree sectors showed a decline in Q3 including Media and Entertainment, Semiconductors, Telecommunications and IT Services.

Stage of Development

Venture investment declined across all stages of development in both dollars and deals in the third quarter of 2012.

Seed stage investments fell 22 percent in dollars and seven percent in deals with $178 million invested into 67 deals in the third quarter. Early stage investments also declined, falling 21 percent in dollars and seven percent in deals with $1.7 billion going into 395 deals. Seed/Early stage deals accounted for 52 percent of total deal volume in Q3, compared to 53 percent in the second quarter of 2012. The average Seed deal in the third quarter was $2.7 million, down from $3.2 million in Q2. The average Early stage deal was $4.4 million in Q3, down from $5.2 million in the prior quarter.

Expansion stage investment decreased just three percent in dollars and one percent in deals in the third quarter, with $2.6 billion going into 241 deals. Overall, Expansion stage deals accounted for 27 percent of venture deals in the third quarter, and the average Expansion stage deal was $10.8 million, down from $11.1 million in the prior quarter.

Investments in Later stage deals decreased 10 percent in dollars and four percent in deals to $2.0 billion going into 187 rounds in the third quarter. Later stage deals accounted for 21 percent of total deal volume in Q3, similar to Q2 when $2.2 billion went into 195 deals. The average Later stage deal in the third quarter was $10.5 million, which is a slight decline from $11.2 million in the prior quarter.

First-Time Financings

First-time financing (companies receiving venture capital for the first time) dollars declined eight percent in dollars to $1.0 billion in Q3, but the number of deals increased one percent to 297 deals in the third quarter. First-time financings accounted for 16 percent of all dollars and 33 percent of all deals in the third quarter, compared to 15 percent of all dollars and 32 percent of all deals in the second quarter of 2012.

Companies in the Software, Media & Entertainment, and IT services industries received the most first-time rounds in the third quarter. The Biotechnology sector experienced a continued drop in first-time deal volume to just 15 rounds in the third quarter while Medical Device first time financings remained low at 17 rounds. The average first-time deal in the third quarter was $3.4 million, down slightly from $3.7 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments, garnering 82 percent of the deals.

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

Berkery Noyes: Education Industry - 3rd Qtr Trends Report

Complete report

Q3 2012 KEY HIGHLIGHTS

• The most active acquirer through Q3 2012 was Pearson plc with four transactions, two of which occurred during Q3 2012: PT Efficient English Services and Psychological Software Solutions, Inc.
• The largest transaction in Q3 2012 was Levine Leichtman Capital Partners Inc.'s acquisition of MPW, a portfolio company of Apollo Group, Inc., for $85 million.

Q3 2012 KEY TRENDS

• Total transaction volume in Q3 2012 increased by two percent over Q2 2012, from 58 to 59.
• Total transaction value in Q3 2012 decreased by 39 percent over Q2 2012, from $740.0 million to $454.8 million.

MULTIPLES & VALUE TRENDS

• The median revenue multiple from 2011 through the 1st 3 Quarters of 2012 fell by 13 percent, from 1.6x to 1.4x.
• The median EBITDA multiple from 2011 through the 1st 3 Quarters of 2012 increased by 13 percent, from 12.0x to 13.5x.
• Professional Training Technology from 2011 through the 1st 3 Quarters of 2012 had a median revenue multiple of 2.2x.

TOP TEN DEALS THROUGH Q3 2012

The top ten deals by value have seen two new additions since our half year report, both of which were completed by private equity firms: Levine Leichtman Capital Partners Inc.'s acquisition of MPW and Sovereign Capital Partners LLP's acquisition of three sixth form colleges in Central London.

These two transactions, with an aggregate value of $134 million, represented six percent of transaction value in the 1st 3 Quarters of 2012 and 29 percent of Q3 2012 transaction value.

Berkery Noyes: Health Care Industry - 3rd Qtr Trends Report

Complete report

Q3 2012 KEY HIGHLIGHTS

• The largest transaction through Q3 2012 was Roper Industries, Inc.'s acquisition of Sunquest Information Systems, Inc., a portfolio of Vista Equity Partners, for $1.4 billion.
• The most active acquirer year-to-date was IMS Health Incorporated with five transactions, two of which occurred during Q3 2012: TTC LLC and PharmaDeals Ltd.

Q3 2012 KEY TRENDS

• Total transaction volume in Q3 2012 decreased by seven percent over Q2 2012, from 96 to 89.
• Total transaction value in Q3 2012 fell by seven percent over Q2 2012, from $4.2 billion to $3.9 billion.

MULTIPLES & VALUE TRENDS

• The median revenue multiple from 2011 through the 1st 3 Quarters of 2012 increased by 17 percent, from 1.8x to 2.1x.
• The median EBITDA multiple from 2011 through the 1st 3 Quarters of 2012 increased by six percent, from 9.9x to 10.5x.
• One Equity Partners' acquisition of M*Modal represented a 2.3x revenue multiple and 9.6x EBITDA multiple.

TOP TEN DEALS THROUGH Q3 2012

The top ten deals by value have seen three new additions since our half year report: Roper Industries, Inc.'s acquisition of Sunquest Information Systems, Inc., One Equity Partners' acquisition of M*Modal, and SAIC's acquisition of maxIT Healthcare, LLC.

These three transactions, with an aggregate value of $2.9 billion, represented 26 percent of transaction value in the 1st 3 Quarters of 2012 and 74 percent of Q3 2012 transaction value.

Berkery Noyes: Private Equity Industry - 2012 3rd Qtr Trends Report

Complete report

Q3 2012 KEY HIGHLIGHTS

• The most active acquirer through Q3 2012 was Apax Partners with 10 transactions. Four of these occurred within Q3 2012: Solarsoft Business Systems, RivalEdge, CWIEME Ltd, and ClaimLogic, Inc.
• The largest announced transaction in Q3 2012 and year-to-date was The Carlyle Group's acquisition of Getty Images from Hellman & Friedman LLC for $3.3 billion.

Q3 2012 KEY TRENDS

• Total transaction volume in Q3 2012 decreased by four percent over Q2 2012, from 119 to 114.
• Total transaction value in Q3 2012 increased by 10 percent over Q2 2012, from $11.4 billion to $12.5 billion.

MULTIPLES & VALUE TRENDS

• The median revenue multiple from 2011 through the 1st 3 Quarters of 2012 decreased by 28 percent, from 1.8x to 1.3x.
• The median EBITDA multiple from 2011 through the 1st 3 Quarters of 2012 increased by eight percent, from 8.8x to 9.5x.
• Thoma Bravo, LLC's announced acquisition of Mediware Information System's Inc. represented a 2.4x revenue multiple and 11.4x EBITDA multiple.

TOP TEN DEALS THROUGH Q3 2012

The top ten deals by value have seen five new additions since our half year report: The Carlyle Group's announced acquisition of Getty Images, Hellman & Friedman LLC's announced acquisition of Wood Mackenzie, One Equity Partners' acquisition of M*Modal, Thoma Bravo, LLC's acquisition of Deltek, Inc., and Syniverse Technologies, Inc.'s acquisition of MACH S.à.r.l.

These five transactions, with an aggregate value of $7.1 billion, represented 22 percent of transaction value in the 1st 3 Quarters of 2012 and 57 percent of Q3 2012 transaction value.

Angel investor market in steady recovery, UNH Center for Venture Research finds

The angel investor market in the first two quarters of 2012 showed signs of steady recovery since the correction in the second half of 2008 and the first half of 2009, with total investments at $9.2 billion, an increase of 3.1 percent over the same period in 2011, according to the Center for Venture Research at the University of New Hampshire. A total of 27,280 entrepreneurial ventures received angel funding during the first half of 2012, a 3.7 percent increase from the same period in 2011, and the number of active investors in Q1 and Q2 2012 was 131,145 individuals, a 5 percent increase from Q1 and Q2 2011. The increase in total dollars and the matching increase in total investments resulted in an average deal size of $336,390 in the first half of 2012, comparable to the deal size in the same period in 2011 of $338,400. "These data indicate that angels remain major players in this investment class and at valuations similar to the first and second quarters of 2011. While the market exhibited a stabilization from the first and second quarters of 2011, when compared to the market correction that occurred in 2008, these data indicate that the angel market has demonstrated a steady recovery since 2008," said Jeffrey Sohl, director of the UNH Center for Venture Research at the Whittemore School of Business and Economics. Angels continued their appetite for seed and start-up stage investing, with 40 percent of Q1 and Q2 2012 angel investments in the seed and start-up stage, which is virtually unchanged from the 39 percent in the like period last year. There was, however, a shift to expansion stage financing to 22 percent of investments in Q1 and Q2 2012 from 13 percent in Q1 and Q2 2011, indicating that angels are positioning their investments for exits in the coming year. New, first-sequence investments represent 49 percent of Q1 and Q2 2012 angel activity, unchanged from the same period last year. "Historically angels have been the major source of seed and start-up capital for entrepreneurs and while this stabilization in seed and start-up investing is an encouraging sign it remains below the pre-2008 peak of 55 percent, signifying that there remains a need for seed and start-up capital for both new venture formation and job creation," Sohl said. Healthcare services/medical devices and equipment accounted for the largest share of investments, with 24 percent of total angel investments in Q1 and Q2 2012, followed by software (14 percent), biotech (12 percent), retail (10 percent), IT services (7 percent) and media (6 percent). "After a favored status in the top six sectors for industrial/energy since 2009, which reflected an interest in clean tech investing, interest in this sector waned in the first and second quarters of 2012. Retail and media have solidified their presence in the top six sectors, mainly due to investing in social networking ventures," Sohl said. Angel investments continue to be a significant contributor to job growth, with the creation of 106,400 new jobs in the United States in 2012, or 3.9 jobs per angel investment.

International Venture Capital Deals Activity Declines in Q3

8% drop in the number and 20% decline in the value of VC deals in Q3 2012 in comparison to previous quarter Preqin’s quarterly venture capital deal-flow data shows that 1,226 venture capital financings were announced during Q3 2012, with an aggregate value of $9.3bn – an 8% drop in the number and a 20% decline in the value of deals in comparison to Q2 2012. This dip in activity brings VC deal value back to similar levels of venture capital investments witnessed in Q4 2011 and Q1 2012, while the number of deals taking place remains strong in comparison to recent quarters. Other Key Facts: • 70% of the number and 76% of the global aggregate value of VC deals announced in Q3 2012 occurred in North America, with 860 financings valued at $7.0bn during the quarter, a decrease of 4% in the number and 19% in the value of deals in the region in comparison to the previous quarter. • European deals accounted for 16% of the number and 11% of the global aggregate value of venture deals in Q3 2012, with 191 deals valued at $1.0bn during the quarter, a decline of almost a third in both the number and value of deals in comparison to Q2 2012. • 39 venture deals valued at $370mn were announced in China during Q3 2012, representing 3% of all deals globally. While the number of VC deals in China has increased slightly in comparison to Q2 2012, the value of deals fell 40% from the previous quarter, as investor worries over the Chinese exit market continue to subdue deal activity. • 78 VC deals valued at an aggregate $610mn were announced in India during Q3 2012, a 40% increase in deal value from the previous quarter; this represents the highest levels of VC activity in the country in any quarter from Q1 2010 to Q3 2012. • Israel saw virtually identical numbers of deals compared to the previous quarter, with 19 deals valued at $128mn announced. • Q3 2012 witnessed the continuing prominence of early stage investments in the venture capital sector, with angel/seed stage deals accounting for 22% of investments in Q3, whilst Series A deals represented 16% of deals. Additionally, Series B, C, D and later investments accounted for less than 20% of the number of all deals. • While companies in the internet sector once again received the highest number of VC financings, the aggregate value of these as a proportion of the total for all sectors fell four percentage points from 25% in Q2 2012 to 21% in Q3. • Software deals account for 17% of the value of VC deals in Q3 2012 (up from 11% in Q2 2012), while healthcare deals represent 16% of the number and 22% of the value of VC deals this quarter.

VENTURE M&A AND IPO MARKET CONTINUE TO SLIP

Initial public offerings (IPO) and mergers and acquisitions (M&A) are both down for the third quarter as compared with the same quarter last year. The third quarter ended with 10 IPOs of U.S. venture-backed companies, the fewest since the fourth quarter of 2011. Mergers and acquisitions of venture-backed companies decreased by 46 deals to 99 in the third quarter, a 32% drop from the same period last year and reversing an upward trend seen over the first half of the year, according to Dow Jones VentureSource. Ten U.S. venture-backed companies raised $807 million through IPOs in the third quarter, one fewer than the 11 IPOs that raised $506 million in the same quarter last year. Currently, 36 U.S. venture-backed companies are in IPO registration. Eight of those companies registered in the third quarter. Start-ups based in California dominated exit markets, accounting for nearly half of venture M&As (47) in the third quarter and 60% of IPOs. “Investor caution continues to be evident in the public markets as demonstrated by the lackluster deal count,” said Brendan Hughes, Director of Information Analysis for VentureSource. “Companies that do manage to get out the door are taking longer and raising more money, with a median amount raised of $89.7 million and time to liquidity over 7 years.” Business Support Services Pick Up M&A Slack Business support services was the most active industry for M&As with 23 deals garnering $3.4 billion, an 8% decline in exits but a 56% increase in capital raised as compared to the same period last year. Microsoft Corp.’s acquisition of Yammer Inc. for $1.2 billion was the largest of the quarter and the second largest of the year. The largest IPO of the quarter was Palo Alto Networks Inc., which raised $197 million and listed on the New York Stock Exchange. Groupon Inc.’s acquisition of Savored Inc. increased its tally to eight venture-backed acquisitions for the year, the most by any corporate acquirer. IT M&As Fall, Driven by Software Segment The information technology (IT) industry saw the most dramatic drop in deal activity, as the number of acquisitions fell from 66 in the third quarter of 2011 to 28 in the most recent quarter. The drop was largely driven by the software segment which saw deals fall by exactly half, from 46 to 23. However, the IT industry led the quarter’s IPOs, with four companies going public. “While there have been some high-profile IPO disappointments among consumer-focused companies, enterprise-related offerings found success in recent months,” said Zoran Basich, editor of Dow Jones VentureWire. “Meanwhile, the slip in M&A activity shows that corporate acquirers are still proceeding cautiously amid a slow economic recovery.” During the third quarter, 99 mergers, acquisitions and buyouts raised $13 billion, a decrease of 32% and 12%, respectively, from the same period last year. The median price paid for a company fell to $60 million from $85 million in the third quarter of last year. To reach an M&A or buyout, it took companies a median of $16 million in venture financing, 6% less than in the third quarter of 2011, and a median of 5.3 years, less time than the 5.72 median a year earlier, to exit.

VENTURE CAPITAL INVESTMENT SLOWS IN CHINA

Venture capital investment in mainland Chinese companies declined significantly in the first six months of the year, the latest sign of weakening economic outlook in the world’s second-largest economy.

According to Dow Jones VentureSource, which tracks venture-backed companies, the value of venture capital investments in Chinese companies was US$1.9 billion in the six months through June, down 43% from the same period last year. The number of deals declined 38% to 103. Each deal represents a single case of investment by a professional venture capital firm, corporation, private equity firm or individual.

Commenting on the decline, Guido Schenk, APAC and EMEA sales director for Dow Jones VentureSource, said: “Venture capital firms are being more selective in considering their China investments, particularly given the uncertain macroeconomic landscape and challenging exit environment. Until IPO and M&A activity in China pick up, we’re unlikely to see a jump in venture capital investment.”

In the six months ending June, venture capital exits in China by IPO declined 42% to 32 cases. Venture capital firms exited only three China investments by M&A, far less than the 208 exits by M&A or buyout in the U.S. and the 68 exits by M&A or buyout in Europe during the same period.

Median Investment Values Remain Robust

Despite the slide in total investment volume and value, the median invested amount for the half year remained relatively robust at US$11.5 million, only slightly below the same period in 2011.

“The robust median value demonstrates that investors remain confident about opportunities in China and have not cut back on deal sizes,” said Mr. Schenk.

Investment Declines in Most Industry Groups

The largest investment declines were in consumer services and industrial goods.

Investment in consumer services, which is largely driven by consumer internet companies, fell 51% to US$908 million invested in 47 deals.

Industrial goods and materials makers saw a decline of 86% to US$29 million across three deals in the six months through June.

Information technology (IT) investment declined 42% to US$342 million invested in 22 deals across the first half of 2012. Investment declines hit all IT sub-sectors, including communications and networking, electronics and computer hardware, semiconductors and software.

Healthcare investment declined 71% to US$61 million for seven deals in the half year due to smaller investments in biopharmaceutical companies (down 85% to US$24 million) and medical device and equipment manufacturers (down 65% to US$12 million).

Investment in business and financial services totaled US$233 million across 13 deals in the first half of the year. Although the number of deals declined 48%, the investment value fell just 2% year on year, reflecting continued interest in attractive investment opportunities in China’s financial services institutions and business support services providers.

Industries recording year-on-year growth included energy and utilities, at US$41 million invested across three deals, as well as consumer goods, comprising makers of automotive parts, food and beverages, and personal goods such as clothing, which collectively attracted US$307 million across eight deals, up 36% year on year.

China Decline Sharper than Other Markets

The overall investment decline in China was sharper than that seen in other major investment destinations worldwide.

During the same period, venture capital investment in the U.S. totaled $15.3 billion for 1,595 deals, a decline of 7% in capital and 5% in deals from the same period in 2011.

In Europe, through the first six months of this year, venture capital investment totaled €2.2 billion for 550 deals, a 7% decline in capital and 10% decline in deals from same period last year. The U.K. accounted for 37% of this total investment value, at €811 million. Germany’s €302 million, accounting for 14% of investment, increased 8% from the same period last year, while France’s €348 million was relatively flat with a modest 1% decline.

CONSUMER INTERNET COMPANIES FUEL GROWTH IN EUROPEAN VENTURE INVESTMENT

Consumer Services Make Strong Gains; Energy and Healthcare Fall; Early-Stage Investing Picks Up

Venture-backed companies based in Europe raised €1.3 billion through 273 venture capital deals during the second quarter of 2012, a 14% increase in capital raised but a 20% decline in deals from the same period last year, according to Dow Jones VentureSource.

“Deal activity fell but investment grew as the lacklustre exit environment kept companies private longer. As companies age, they often need larger financing rounds to continue, which boosts the amount invested,” said Anne Malterre, European research manager, Dow Jones VentureSource. “We saw deep declines in renewable energy, in part due to the U.K.’s feed-in tariff cuts, and in healthcare. There were some bright spots, however, as VCs increased the percentage of deals done for early-stage companies and interest in online start-ups remained strong.”

During the second quarter, 38 European venture-backed companies were acquired, a 34% drop in deals from the same period last year, and three companies went public, which was half the number of initial public offerings (IPOs) recorded in the second quarter of 2011.

Through the first six months of this year, venture capital investment totaled €2.2 billion for 550 deals, a 7% decline in capital and 10% decline in deals from the year-ago period.

The industry trends in the second quarter largely reflect the recently released U.S. investment figures, with Internet and software companies faring well but significant declines recorded in the healthcare and energy industries.

Investment in Consumer Internet Companies Remains Strong

Consumer services saw the greatest gains of any industry in the second quarter, raising €493 million through 72 deals, more than double the €239 million raised during the same period last year despite only one more deal being completed. Nearly two-thirds of the capital collected by the consumer services industry went to the consumer information services sector, which includes social media, online entertainment and search companies.

Energy & Utilities Drops by Two-Thirds

Energy and utilities companies raised €42 million through nine deals in the second quarter, a fall of 67% in investment and 63% in deal activity. Investment in renewable companies echoed the sector as a whole, falling to €35 million for seven deals, a 70% decline in investment and 65% decline in deals.

Healthcare Slips

Investment in healthcare companies fell to €237 million for 50 deals, a 24% decline in investment and 33% decline in deals. Investment in biopharmaceuticals increased 7% to €196 million for 31 deals, while investment in the medical devices sector fell 68% to €33 million for 17 deals.

Software Investment Makes Strong Gains

The information technology (IT) industry raised €215 million for 73 deals during the second quarter, an 18% decline in investment and a 17% drop in deal activity compared with the same period last year. The software sector – traditionally the most popular investment area in IT – fared well, raising €136 million through 54 deals, a 24% increase in investment despite an 8% drop in deals.

Deal Flow Falls for Business & Financial Services

Business and financial services companies raised €144 million for 35 deals during the second quarter, a 58% increase in investment despite a 27% decline in deals. The business support services sector, which is driven by interest in marketing, advertising and data management companies, raised €108 million through 26 deals during the second quarter, double the amount invested in the same period last year despite a 28% drop in deal flow.

Early-Stage Deals Capture a Larger Slice of Deal Flow

Sixty-two percent of deals in the second quarter went to early-stage companies, up from 58% in the same period last year. Early-stage companies also accounted for 32% of capital invested, on par with the second quarter of 2011. Second-round deals accounted for 19% of deal flow and 18% of capital invested, down from 25% and 28%, respectively, in the year-ago period. Later-stage deals accounted for 19% of deals, up from 17% a year earlier, and 49% of capital invested, a significant increase from the year-ago period when 39% of capital went to later-stage companies.

Country Perspectives

* The U.K. consolidated its position as the favored destination for venture capital investment in Europe during the second quarter. Companies in the U.K. raised €504 million in 71 deals, representing a 75% increase in investment from the same period last year despite a 15% decline in deals.
* Germany moved to second place as companies raised €185 million for 51 deals, a 47% jump in investment and a 31% increase in deal flow compared with the same period last year.
* France placed third as companies raised €169 million for 65 deals, a 26% decline in investment and a 17% drop in deals from the same period last year.

Venture Capitalists’ Confidence Falls in Second Quarter

The Silicon Valley Venture Capitalist Confidence Index® for the second quarter of 2012, based on a June 2012 survey of 30 San Francisco Bay Area venture capitalists, registered 3.47 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence.) This quarter’s index fell back from the previous quarter’s sharp rise in confidence and reading of 3.79.

This is the 34th consecutive quarterly survey and research report and, thus, provides unique quantitative and qualitative trend data and analysis on the confidence of Silicon Valley VCs in the future high-growth entrepreneurial environment. Mark Cannice, professor of entrepreneurship and innovation with the University of San Francisco (USF) School of Management, authors the research study each quarter.

In the new report, Cannice states, “Macro issues such as the fate of Europe, regulatory constraints in the life science arena, and disappointment in the Facebook IPO overshadowed a steady confidence in the positive technology trends (e.g. cloud, mobile, social) that are centered in the Valley.” For example, one of the study’s respondents, Elton Sherwin of Ridgewood Capital, asserted that as start-ups conduct business internationally more now than in years past, this slow down overseas (in Europe and China) will affect start-up firms more than previously. With regard to the life sciences, Gerard van Hamel Platerink of Accuitive Medical Ventures indicated, “Continuing regulatory challenges along with a tough financing environment is causing investors to focus on existing deals rather than new investments.” Meanwhile, Venky Ganesan of Globespan Capital Partners pointed out, “The Facebook IPO might have flopped, but the disruptive trends around mobile, cloud, and social remain very much intact.”

Professor Cannice concluded the report stating, “Despite the macroeconomic and regulatory constraints that ruled the day in Q2, the projection of a more welcoming exit market, and continued focus on technological, market, and business model innovation points to a brighter outcome for the balance of 2012.”

In related research on China Venture Capitalist confidence, Cannice and his co-author, Ling Ding, found confidence among VCs in China plummeted to a historic low in Q2 due in part to macro economic uncertainty and continued high valuations.

Berkery Noyes’ first half 2012 report: Information Industry M&A trends

Private Equity Information Industry Merger & Acquisition Trends For First Half 2012

Financially sponsored transactions specifically within the Software portion of the Information Industry, after remaining flat throughout 2011, increased 15 percent during the last six months. Three of the top ten Software deals in first half 2012 were backed by private equity firms, together accounting for 21 percent of financially sponsored transaction value in the Information Industry.

Access the free four-page report here.

Media and Marketing Industry Merger & Acquisition Trends For First Half 2012

Marketing was the most active industry segment for first half 2012, accounting for 262 transactions and surpassing Internet Media in transaction volume during the last twelve months. Internet Media activity declined two percent compared to second half 2011 but remained 19 percent above its second half 2010 levels.

Access the free four-page report here.

Online and Mobile Merger & Acquisition Trends For First Half 2012

Although SaaS/ASP was the largest segment with 250 transactions, E-Commerce was the fastest growing segment throughout the last 12 months. M&A volume in social media marketing, examined as a subset of the E-Marketing & Search segment, increased fourfold compared to first half 2011 and 30 percent relative to the prior half year period.

Access the free four-page report here.

Software Industry Merger & Acquisition Trends For First Half 2012

M&A in the Consumer Software segment increased 29 percent compared to first half 2011, making it the fastest growing segment on a half-to-half year basis. Transaction volume for software that is used to analyze and manage customer data, a sub-category of the Business Software segment, increased 40 percent between 2010 and 2011. The sector remained nearly constant during the last six months, which was a 33 percent improvement over first half 2010.

Access the free four-page report here.

Education Industry Merger & Acquisition Trends For First Half 2012

Despite the constant overall deal flow, the Corporate and Professional Training segment experienced a 32 percent increase in transaction volume. Vista Equity Partners was the most active related buyer, acquiring Silverchair Learning Systems and Essential Learning. CAE’s acquisition of Oxford Aviation Academy, a subsidiary of STAR Capital Partners Limited, was the largest transaction in the segment and had an acquisition price of $315 million.

Financial Technology and Information Industry Merger & Acquisition Trends For First Half 2012

The median revenue multiple improved from 2.3x to 2.7x over the last six months, while the median EBITDA multiple increased from 11.4x to 16.1. The Payments segment experienced a 30 percent volume increase compared to first half 2011. Within the Payments segment, the most active associated buyer during the last two and a half years was VeriFone, a provider of point-of-sale electronic payments solutions, with six transactions.

Healthcare/Pharma Information and Technology Industry Merger & Acquisition Trends For First Half 2012

Total transaction volume in first half 2012 increased by 28 percent over second half 2011. In terms of transaction type, 27 percent of industry deals were financed by private equity, venture capital, and other investment firms. This represented a seven percent increase compared to second half 2011.

IMPROVING TRENDS FOR LIFE SCIENCE INVESTMENT

Silicon Valley Bank, financial partner to technology and life science companies and their investors worldwide, released "Continued Rebound: Trends in Life Science M&A." This report examines the merger and acquisition behavior of private, venture capital-backed biotech and medical device companies.

Based on an analysis of private merger or acquisition transactions of US venture capital-backed companies since 2005, Silicon Valley Bank found a rebound in "Big Exits" among life science companies. Big Exits were defined as acquisitions where the upfront payment totaled in excess of $50 million for device companies and $75 million for biotech companies: Silicon Valley Bank recorded35 Big Exits in 2011: seven-year high, 12.5 billion invested in life science: a seven-year high and Increased upfront deal values

Indications receiving the largest investments since 2005: Biotech: Oncology, CNS, Anti-Infectives; Device: Diagnostics, Orthopedics, Cardiovascular

Sectors with the highest multiples, versus dollars deployed since 2005: Biotech: Respiratory, Cardiovascular, Oncology, Device: Surgical, Vascular, Tools

The full report, "Continued Rebound: Trends in Life Science M&A", is available here. A tandem report, examining the current and emerging trends in life science investments, "First Mover Advantage: The Case for Investing in Life Science," is also available.

"Our data shows positive momentum in exits in the life science industry," said Jonathan Norris, Managing Director with SVB Capital's Venture Capital Relationship Management team and author of the report. "In 2011 we saw the most VC-backed big exits, generating the largest amount of liquidity in biotech and device, since we started tracking this data in 2005. While this does not correct the poor overall returns for the last decade, these dynamics position life science as an attractive investment opportunity now and in the future."

Silicon Valley Bank works with 50 percent of life science-focused VC firms and life science companies nationwide, specializing in companies in biotech and medical device fields.

VENTURE CAPITAL INVESTMENTS EXPERIENCE DOUBLE-DIGIT INCREASES IN DOLLARS AND DEAL VOLUME IN Q2 2012

Internet-Specific and Early Stage Investing Jumps; Life Sciences Investing Falls
Venture capitalists invested $7.0 billion in 898 deals in the second quarter of 2012, 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 climbed 17 percent in terms of dollars and 11 percent in the number of deals compared to the first quarter of 2012 when $6.0 billion was invested in 809 deals.
The number of Early stage deals reached the highest quarterly total since Q1 2001, with $2.1 billion going into 410 deals, an 18 percent increase in dollars and a 28 percent increase in deals from the prior quarter.
The Internet-specific sector also saw increases during the second quarter, rising 22 percent in dollars and 31 percent in deals from the prior quarter to $1.8 billion going into 261 deals in Q2.
The Life Sciences sector (Biotechnology and Medical Devices), however, experienced a decline in funding in the second quarter, dropping 9 percent in dollars and 6 percent in deals from the prior quarter to $1.4 billion going into 174 deals in Q2.
“The concentration of venture capital dollars in the hands of fewer firms will increasingly dictate the flow of investment,” said Mark Heesen, president of the NVCA. “Currently, this translates into more funding for IT start-ups and less capital available for life sciences and clean technology. We hope to see this investment mix rebalance over time as the start-up ecosystem is better served with more diversity, not less. Additionally, we continue to watch the early stage and first time financing numbers as they are critical to the U.S. innovation pipeline. We are encouraged that these numbers were stronger this quarter and hope that this signals an ongoing commitment on behalf of venture firms to make these longer term, breakthrough investments.”
“If funding levels in the second half of the year remain consistent with the first half of the year, VC investing in 2012 will fall short of the nearly $30 billion invested in 2011 but will exceed the $23 billion invested in 2010,” remarked Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US. “Software and Internet companies continue to be attractive industries for VCs since most of these companies tend to be capital efficient and don’t require large amounts of capital to operate. VCs also find the potential for profitable liquidity events to be attractive for these companies. On the contrary, given the regulatory challenges currently impacting the Life Sciences industry and the amount of capital required to fund these companies, it’s no surprise that investments in this industry have declined for the fourth consecutive quarter.”
Industry Analysis
The Software industry received the highest level of funding for all industries with $2.3 billion invested during the second quarter of 2012, which is the highest investment total for the sector since the second quarter of 2001. This level of investment represents a 38 percent increase in dollars, compared to $1.7 billion invested in the first quarter. The Software industry also had the most deals completed in Q2 with 290 rounds, which represents a 16 percent increase from the 251 rounds completed in the first quarter of 2012.
Life Sciences investing declined for the fourth consecutive quarter, most notably in the Biotechnology sector where $697 million went into 90 deals, representing the lowest quarterly total for the industry since the first quarter of 2003. The Medical Devices and Equipment industry received the third highest investment amount in Q2 with $700 million going into 84 deals, an 11 percent increase in deals while the dollars remained relatively flat compared to the prior quarter. Investments in the Life Sciences sector (Biotechnology and Medical Devices) fell 9 percent in dollars and 6 percent in deals, and accounted for 20 percent of all VC dollars invested for the quarter, down from 29 percent in 2011.
Internet-specific companies received the second highest level of investment in more than a decade with $1.8 billion going into 261 deals, a 22 percent increase in dollars and a 31 percent increase in deals from the first quarter when $1.5 billion went into 199 deals. Investment in Internet companies has surpassed the $1 billion dollar mark each quarter for the past two years, and two of the top 10 deals for the quarter were in the Internet-specific category. Internetspecific’ 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, also saw an 8 percent increase in dollars but experienced a 28 percent decrease in deal volume with $1.0 billion going into 55 deals during the second quarter compared to $962 million going into 76 deals in the prior quarter. The dollar increase in Q2 was driven by several large rounds as evidenced by four of the top 10 deals of the quarter, including the top three overall, falling within the clean technology category.
Eleven of the 17 MoneyTree sectors experienced increases in dollars invested in the second quarter, including Semiconductors (63 percent increase), Media & Entertainment (62 percent increase), Telecommunications (44 percent increase), Industrial/Energy (15 percent increase) and IT Services (12 percent increase). Additionally, 11 of the 17 sectors also experienced increases in the number of deals.
Stage of Development
Seed stage investments rose 33 percent in dollars and 15 percent in deals with $199 million invested into 63 deals in the second quarter. Early stage investments also rose, climbing 18 percent in dollars and 28 percent in deals with $2.1 billion going into 410 deals, the largest quarterly deal total since the first quarter of 2001. Seed/Early stage deals accounted for 53 percent of total deal volume in Q2, compared to 46 percent in the first quarter of 2012. The average Seed deal in the second quarter was $3.2 million, up from $2.7 million in the Q1.
The average Early stage deal was $5.2 million in Q2, down from $5.6 million in the prior quarter. Expansion stage dollars increased 49 percent in the second quarter, with $2.6 billion going into 232 deals. Overall, Expansion stage deals accounted for 26 percent of venture deals in the second quarter, a slight decrease from 27 percent in the first quarter of 2012. The average Expansion stage deal was $11.3 million, down from $8.1 million in the prior quarter.
Investments in Later stage deals decreased 10 percent in dollars and 11 percent in deals to $2.1 billion going into 193 rounds in the second quarter. Later stage deals accounted for 21 percent of total deal volume in Q2, compared to 27 percent in Q1 when $2.3 billion went into 216 deals. The average Later stage deal in the second quarter was $10.8 million, which is a slight uptick from $10.7 million in the prior quarter.
First-Time Financings
First-time financing (companies receiving venture capital for the first time) dollars increased 24 percent to $1.1 billion in Q2, and the number of deals rose 27 percent to 282 deals in the second quarter. First-time financings accounted for 15 percent of all dollars and 31 percent of all deals in the second quarter, compared to 14 percent of all dollars and 27 percent of all deals in the first quarter of 2012. Companies in the Software, Media & Entertainment, and IT services industries received the most first-time rounds in the second quarter. The Life Sciences sector experienced a slight drop, falling 3 percent in dollars and 4 percent in deals during the second quarter to $130 million going into 27 companies. The average first-time deal in the second quarter was $3.7 million, down slightly from $3.8 million in the prior quarter. Seed/Early stage companies received the bulk of first-time investments, garnering 78 percent of the deals.

U.S. VENTURE INVESTMENT DECLINES IN SECOND QUARTER

Dow Jones VentureSource: Internet and IT Investment Remains Steady, Biopharmaceuticals and Energy Investment Falls; Early-Stage Investing Picks Up

U.S.-based companies raised $8.1 billion through 863 venture capital deals during the second quarter of 2012, a 9% decline in capital and 3% decline in deals from the same period last year, according to Dow Jones VentureSource.

Through the first six months of the year, venture capital investment totaled $15.3 billion for 1,595 deals, a 7% decline in capital and 5% decline in deals from the year-ago period.

“IT and Internet investment has been steady but interest in capital-intense industries like healthcare and energy is fading,” said Brendan Hughes, director of information analysis for Dow Jones VentureSource. “The unpredictable environment for IPOs – the traditional exit for biopharmaceuticals companies – has entrepreneurs and investors struggling to find new business models. In energy, investors are favoring smaller technology plays rather than big investments in solar or biofuels.”

The median amount invested in a financing round was $5 million in the second quarter of 2012, on par with the same period last year.

Investment in Consumer Internet Companies Remains Strong

The share-price declines of Groupon, Facebook and Zynga after high-profile public debuts have not deterred investors from committing capital to young Internet companies. Investment in consumer Internet companies, which includes social media, entertainment and shopping aggregators, rose to $967 million raised for 134 deals during the second quarter, a 27% increase in capital and 14% increase in deals from the same period last year.

“Alongside the headline-grabbing IPO flops there have been several Internet IPOs that performed well following their public debuts. The successful IPOs of Yelp, Brightcove and LinkedIn are helping fuel the continued interest and investment in this sector,” said Zoran Basich, editor of Dow Jones VentureWire.

Software Investments Keep IT Healthy

Information technology (IT) companies raised $2.4 billion for 286 deals in the second quarter, a slight change from the same period last year when $2.5 billion was put into 296 deals. Software continued to be the primary driver of deals and investment, as 218 deals raised $1.6 billion, a 2% decline in deals and a 2% increase in capital from the second quarter of last year.

Health IT Bucks Downward Trend In Healthcare Investment

In the second quarter, healthcare companies raised $1.5 billion for 161 deals, a 33% decline in investment and 15% decline in deals from the same period last year.

Investment in biopharmaceuticals companies fell significantly as 54 deals raised $570 million in the second quarter, a 22% decline in deals and 43% decline in capital invested. Also during the second quarter, medical device companies raised $653 million for 67 deals, a 33% decline in investment and 22% decline in deals.

The only bright spot in the healthcare industry was health IT, which is benefiting from interest in technologies that manage health information and data. Health IT companies raised $268 million for 29 deals in the second quarter, a 33% increase in capital raised and 45% increase in deals.

VCs Pull the Plug on Energy Deals

The second quarter the worst for investment in energy and utilities start-ups since the first quarter of 2009. During the second quarter, $293 million was raised for 25 deals, a 56% decline in capital and 32% decline in deals from the same period last year.

As usual, renewable energy companies accounted for most of the deals, raising $211 million through 18 deals.

Investment in Enterprise Start-Ups Rises

Deals for business and financial services start-ups fell 3% but capital invested rose 14% as 139 deals raised $1.7 billion in the second quarter. Investment in this area is largely driven by interest in data management, marketing and advertising companies.

Early-Stage Deals Capture a Larger Slice of Deal Flow, Capital

Early-stage deals captured 45% percent of deal flow and 23% of capital invested during the second quarter, up from the second quarter of last year when these deals accounted for 43% of deals and 19% of capital raised. Second rounds accounted for 18% of deals and 17% of capital, down from the year-ago period when these rounds accounted for 20% of deals and 22% of capital invested. Later-stage deals accounted for 35% of the quarter’s deals and 59% of total capital raised, a change from last year when later-stage rounds captured 34% of deals and 55% of the capital invested.

U.S. AND EUROPEAN PRIVATE EQUITY FUND-RAISING HAVE BEST FIRST HALF SINCE 2008

Limited partners showed strong support for U.S. and European private equity funds in the second quarter, helping both regions achieve the best first half for fund-raising since 2008, according to Dow Jones LP Source.

In the first half of 2012, U.S. private equity funds raised $86 billion for 235 funds, a 27% increase in capital raised despite a 4% decline in fund closings from the first half of 2011. In the second quarter alone, U.S. funds raised $44 billion.

European private equity funds raised $37.3 billion for 79 funds in the first half of 2012, a 39% increase in capital but a 10% decline in fund closings compared to the same period last year. In the second quarter, European funds raised $14.2 billion.

“Overall, private equity firmsproduced a record level of distributions in 2011 and that’s paid off in the form of increased commitment volume to the asset class,” said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. “Limited partners also had a lot of choices given that many veteran firms returned to the fund-raising trail this year.”

Industry-Focused Funds, Venture Fund-Raising On The Rise In The U.S.

U.S. buyout and corporate finance funds raised $59 billion for 108 funds in the first half, a 30% increase in capital from the year-ago period. Within this segment, LPs are gravitating toward funds focused on a specific industry such as financial services, energy or technology. Twenty-three industry-focused funds raised $13.8 billion during the first half, the strongest first half on record for these funds. Dow Jones LP Source has been tracking private equity fund-raising since 2000.

Also within the buyout and corporate finance segment, 44 buyout and acquisition funds raised $24.3 billion, a 31% increase in capital. Diversified private equity funds had their best first half on record as 18 funds raised $12.7 billion.

More money flowed into venture capital in the first half. Eighty-two venture capital funds raised $13 billion in the first half, a 31% increase in capital from the same period a year ago. For a detailed report on venture fund-raising, visit http://www.dowjones.com/pressroom/releases/2012/07092012-VCFund-0051.asp.

Mezzanine funds raised $7.2 billion for 17 funds in the first half, more than double the capital raised in the year-ago period despite two fewer fund closings.

Investment in secondary funds rose 33% to $4.7 billion for 11 funds.

Funds-of-funds bucked the upward trend as capital commitments to the segment fell 65% to $2.1 billion for 17 funds.

LPs Temper Investment Pace In Europe After Record First Quarter

Limited partners in European funds tempered their investment pace in the second quarter after committing $23.1 billion in the first quarter, which was the best first quarter on record. While the $14.2 billion committed in the second quarter was a much more moderate investment pace, it nearly matched the $14.6 billion raised during the same period last year.

In Europe, 33 buyout and corporate finance funds raised $23.9 billion in the first half, an 8% increase in capital. Within this segment, buyout and acquisition funds saw a 41% decline in capital as 16 funds collected $10.2 billion. Diversified private equity funds made up for the loss by raising $10.1 billion for 7 funds, more than 10 times the capital collected in the same period last year for the same number of funds.

Twenty-seven European venture funds raised $2.3 billion, a 26% increase in capital raised for the same number of fund closings compared to the first half of last year. For a detailed report on venture fund-raising, visit http://www.dowjones.com/pressroom/releases/2012/07092012-VCFund-0051.asp.

Investment in secondary funds more than quadrupled as eight funds raised $8 billion. Funds-of-funds also saw a significant increase in investment as eight funds raised $2.8 billion, up from five funds that raised $269 million in the same period last year.

Mezzanine funds did not fare well in the first half as two funds raised $224 million, down from $1 billion raised for three funds during the first half of last year.

Dow Jones LP Source classifies multiple fund closings (first, interim, final) separately to provide an accurate view of the fund-raising environment.

For more information about Dow Jones Private Equity and Venture Capital products, visit http://www.dowjones.com/pr/privatemarkets .