Third Quarter 2010 Trends in Venture Capital

Posted by | October 20, 2010

Third Quarter 2010 Trends in Venture CapitalAccording to the latest MoneyTree survey conducted by PricewaterhouseCoopers and the National Venture Capital Association, venture capital investing in the third quarter of 2010 was unchanged from the third quarter a year ago. Objectively, that might suggest a stabilizing market. However, in this case, the total may be less than the sum of the parts.

For instance, there are some significant developments geographically that should be highlighted. Specifically, venture capital investment in the New York City Metro and Boston markets during the first nine months of this year are on pace to exceed last year’s totals; in addition, venture capital investments in the Philadelphia area in 2010 have far exceeded the 2009 total through the third quarter. As evidenced by these data points, the pendulum is shifting from the west coast to the east coast, specifically in the Internet space. As a result, this activity has spawned frenetic startup and growth activity in New York, specifically, but also up and down the East Coast. This is Safeguard’s sweet spot – the Mid-Atlantic, Northeast and Southeast. World class companies can come from anywhere… and even though venture activity may be lower in areas along the Rte. 128 and Rte. 101 corridors, Safeguard Scientifics‘ focus areas are rich with investment activity.

In line with Internet-based businesses, Web 2.0, the social marketing phenomenon, and the efficiencies of cloud computing have stimulated a new round of innovative new technologies for the corporate user, while consumer demand for increased mobility is driving innovation for new devices and applications.

Switching gears to the life sciences side… Five years ago, our life sciences team looked at less than 100 deals and completed zero transactions. However, by the end of 2010, our team will have looked at 500-600 deals and completed several transactions.  In fact, we recently, made an investment in Good Start Genetics, a leading next-generation DNA sequencing firm that is capitalizing on the megatrend of personalized medicine. The Company is developing an affordable pre-pregnancy test utilizing DNA sequencing to screen for a panel of genetic disorders.  These tests will allow physicians to better identify carriers of inheritable genetic disorders, enabling physicians to help perspective parents make more knowledgeable medical decisions.

By focusing on five trends – maturation of the population, migration to new technologies (such as the rush to online publishing), convergence of technologies, compliance issues, and the push for cost containment, we believe there will be no shortage of great opportunities to deploy capital in high-growth, high-value companies.

In addition, we’ve got a strong team of former CEOs and executives with operating experience, and our deal flow increasingly reflects our national reputation for adding value to companies. Our team has decades of experience in life sciences and technology industries as entrepreneurs, board members, financiers, managers and service professionals, building and operating businesses, and achieving returns for investors. We understand the challenges that young companies face.

As you read through the MoneyTree report, keep in mind that statistics depict raw numbers and oftentimes do not reflect underlying changes that have the potential to profoundly impact the venture capital industry.  For example, the emergence of “Super Angel” investors, either wealthy individuals or a collection of individuals, is in the process of literally replacing early stage institutional venture capitalists.  As such, Super Angels represent a threat to many venture capital firms.  However, for Safeguard, Super Angels provide a very convenient bridge from early stage start-ups to companies that need help scaling their business, a sweet spot where we can most effectively leverage the Safeguard platform.

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