Venture Capital

Since the late 1990s, venture capitalists (VCs) have steadily funded emerging nanotechnology, investing an all-time peak of $1.4 billion in 2008. However, like other segments of the global economy, VCs didn't escape the wrath of the 2008 recession. In fact, VCs slashed nanotechnology funding by 42 percent in 2009. To quantify the impact and the latest trends, Lux Research analyzed its database of primary interviews with start-ups and financiers, and scoured other sources like Capital IQ, and found interesting data regarding nanotech-based deals through December 14, 2009.

VCs tightened their purse strings by 42 percent relative to 2008, doling out only $792 million. In fact, 2009 marked the first year in this decade that investments dropped significantly (2007 deal value fell 1.7 percent, relative to 2006, to $773 million). On the flip side, the number of deals in 2009 increased slightly from 85 in 2008 to 92 in 2009, as VCs looked beyond the popular start-ups of 2008 and distributed the wealth more broadly.

VCs also bid farewell to mega deals, slicing the average deal size by 41 percent, to $8.6 million. In 2008, VCs invested 38 percent of their funds in three companies—A123Systems ($102 million), Pacific Biosciences ($120 million), and Nanosolar ($300 million)—driving the average deal size to an all-time high of $16.2 million. What a difference a year makes, as 2009 deal sizes fell to values last seen in 2000.

While not as concentrated as 2008, VCs favored a short list that included old stalwarts like A123Systems and Pacific Biosciences, as well as lesser known specialists like Nextreme Thermal Solutions. Ten companies pocketed 52 percent of all funding. Furthermore, like Pacific Biosciences, six of the firms on the top-10 list target healthcare and life sciences applications.

The healthcare and life sciences sector saved the day, as it grew 42 percent to $404 million. With deals in the manufacturing, materials, energy, and environment sectors sinking 78 percent and 69 percent, respectively, investments in the healthcare and life sciences sector—such as Lux Biosciences' $50 million haul—provided a cushion for the overall drop in investments. After two years of dominance by the energy and environment sector, healthcare and life sciences roared back to the top in 2009.

Series D or later investments tumbled a whopping 73 percent to $235 million. After a year of triple digit investments in single companies—such as Nanosolar's $300 million in 2008—the Series D walls came falling down in 2009. Moreover, with Series B rounds surging 49 percent to $339 million, it almost reached parity with Series C and later round, which collected $376 million. Like 2008, Series A walked away with the smallest portion at 7 percent or $56 million.

[Page 790]The United States captured the gold again, snagging 84 percent of the pie. Following a common trend throughout the decade, VC's focused on U.S.-based companies, showering them with $668 million. As usual, European-based companies followed, bringing in $108 million.