The volume of money invested globally in venture capital is set to top $32bn this year, more than has been seen for four years, putting investments closer to levels seen during the dotcom bubble, research by consultancy Ernst & Young has found.
Venture capitalists in the US, Europe, China and Israel invested $25.4bn in the first three quarters this year, with $7bn expected in the final quarter.
“We came out of the bubble with much stronger technologies and with better entrepreneurs,” said Gil Forer, global director of Ernst & Young’s venture capital unit. “The quality of technology is much better and that is driving more investment.”
Last year, global investments in venture capital targets – normally defined as companies up to 10 years old – reached $30.9bn; up from $29bn in 2004, $27bn in 2003 and $28.6bn in 2002.
As in the dotcom bubble of 2001, when venture capital investment reached $51.2bn, much of the focus this year has been on technology companies. Biotechnology and internet and other computer-based technologies are among the hottest sectors, with technology to reduce burning of fossil fuels or to cut emissions also attracting a large proportion of funds. About 56 per cent of venture capital investment in the first three quarters was in IT companies; with 29.5 per cent devoted to healthcare companies.
Venture capital investing is increasing fastest in economies such as China and India. In India, Mr Forer pointed to the $10m investment by Sequoia Capital, one of the world’s most successful venture capital funds, in AppLabs Technologies, an Indian software company.
Investment is increasing but Mr Forer does not expect it to reach 2001 levels again for several years: “I hope we won’t see the levels of 2001 again because I want to believe and I think there is reason to believe that the industry has learned a lesson.”
Israel has in recent years been a hot spot particularly for biotechnology investing. It saw healthcare investment of $3.5bn in the first three quarters this year; up from $4.53bn for all of 2005. In 2001, biotechnology investing in Israel stood at $2bn.
There were 56 European venture-backed initial public offerings in the first three quarters, said Ernst & Young, its research assisted by Dow Jones VentureOne, data provider. The addition of fourth-quarter IPOs means 2006 will have seen more flotations than before 2001. During 2005, there were 68 IPOs.