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VCs rain cash on US net, biotech firms

'No major overfunding'

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Tech firms have come up trumps in the US venture capital stakes, with internet companies showing strong growth for 2006.

According to a report by PricewaterhouseCoopers and the National Venture Capital Association, internet-specific companies - those whose business is dependent on the internet - raised $4bn in 645 deals in the US in 2006. This compares favourably to the year before, when the same sector received $3.2bn in 494 deals.

Last year's deals in this area accounted for 16 per cent of all venture capital dollars spent in that year. Some $25.5bn was sunk into VC deals during the whole year, in a total of 3,416 deals. This represents a 12 per cent increase in value from 2005 and was the highest level of investment seen since 2001.

The life sciences sector also saw significant growth in 2006, with record investment in biotech and medical device sectors. Some $7.2bn was invested in 731 deals during the year, compared to $6bn in 647 deals in 2005.

There was slight disappointment for the software sector, however, as investment remained relatively flat for the year. Some $5bn was ploughed into 865 deals, compared to 2005's figure of $4.8bn across 869 deals. Despite this, software was still the largest single industry sector for investment for both the year and the fourth quarter, in terms of deals and dollar value.

Also enjoying growth were the media/entertainment and energy sectors, while seed and early stage companies received increased financing and dollars in 2006. Expansion stage deals, however, saw the largest gains during the year, while first-time financings reached their highest level since 2001.

Although investment in the final quarter of 2006 fell to $5.7bn from $6.6bn in the third quarter of 2005, the figures were still within the range of the $4.3bn to $6.9bn investments seen over past five years.

"While top-line investment levels in 2006 were relatively steady overall, the increases in investment were in all the right places: early stage investing, first time financings, and industry sectors such as clean tech and life sciences that have room to scale," said Mark Heesen, president of the National Venture Capital Association. "And while there is considerable growth in these areas, we are pleased that, to date, quarterly investment levels have remained prudent and no major overfunding has occurred."

Copyright © 2007, ENN

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