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US 2004 venture capital investment rose eight per cent on the year

The value of US venture capital investment recorded its first annual increase last year since 2001, providing further evidence of a strong recovery in the sector. Venture-backed companies received $20.4bn of venture capital compared with $18.9bn in 2003, according to Ernst and Young and VentureOne.

Although the amount invested increased by eight per cent, the deal count was nearly flat compared to the preceding year.

Bryan Pearce, leader of Ernst & Young's New England Venture Capital Advisory Group, said, 'Several positive factors came together in 2004 to mark the beginning of a new venture capital cycle, including increased venture-backed IPO and M&A exits, recovering valuations, and renewed fundraising activity by venture-capital firms.'

Also encouraging was an upturn in early-stage investing. Seed- and first-round deals in 2004 increased to 33 per cent of all deals in 2004 from 31 per cent in the previous year.

'The increase in early-stage investment in 2004, a rise of 17 per cent to a total of $4.1bn in seed- and first-round deals - the highest figure since 2001 - is a reflection of the venture-capital community's confidence in the prospects for long-term success,' Pearce said.

By industry category, median investments in biopharmaceutical companies were the largest of the year. The biopharmaceutical segment is bolstering the venture-capital industry as a whole, with a 20 per cent increase in the amount invested in the category this year, and 7 per cent more deals. There were 228 biopharmaceutical deals and $4.3bn invested, the highest amount in four years.

Another health-care category, health-care services, also saw increases with 36 deals and $375.6m invested in 2004.

IT companies also received significant investments although there was only one more IT deal in 2004 than in 2003. However, in total, $11.3bn was invested in 2004, compared to $10.4bn the year before.

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