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Q2 VC Investments Skyrocket Fueled by Open IPO Window?

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By Brian Orelli
Contributing Writer

What a difference a quarter makes. Three months ago, I was lamenting about how venture capital investing was off to a slow start in 2013. After tallying the totals for the second quarter, it looks like the first quarter was more of a pause than a trend. (See BioWorld Today, April 1, 2013.)

In fact the second quarter was so strong it helped the value of U.S. investments in private companies in 2013 zoom more than 20 percent higher than the same period in 2012 according to data compiled from BioWorld Snapshots.

The number of U.S. venture capital investments in the second quarter increased by 66 percent compared to the first quarter, driven by large increases in the number of Series A and late round (Series C and later) investments.

It's great to see new companies being formed, although it would be nice to see funding of preclinical companies. The percentage of companies securing first-round funding without drugs in the clinic decreased from 79 percent last year to 68 percent this year.

The number of Series B investments was the only downside, holding steady with six in the first quarter and five in the second and remaining below the level seen last year. The small number of Series B investments shouldn't come as much of a shock though; it'll take a while to work through the doldrums of start-ups from a few years ago. You can't have Series B investments if you don't have companies running out of their Series A round.

The increase in the number of later-stage companies being funded is impressive, but so is the size of those investments. In the first half of 2011 , the largest late-round funding was a $50 million investment; this year there were two extremely large investments. Intrexon Corp., of Germantown, Md., secured a $150 million round to fund new collaborations in synthetic biology. And Ophthotech Corp., of Princeton, N.J., snagged a $175 million investment to finance its Phase III age-related macular degeneration program. (See BioWorld Today, May 3, 2013, and May 29, 2013.)

Some of the increase in VC investing might be tied to confidence from VCs that they might actually be able to exit their investments eventually.

The IPO window, which has been open a crack for select companies to go public over the last four years, swung wide in the second quarter with 14 companies going public, compared to just four in the first quarter. For the year, the value of initial public offerings surpassed $1.3 billion. VCs are still participating in the IPO round, so it isn't an exit yet, but at least the potential to return capital to limited partners is in sight.

It would be nice to see some early preclinical companies able to gain funding through IPOs, although we all know what happened to the last two IPO bubbles when they got too inflated with preclinical companies. Pop goes the weasel. (See BioWorld Insight, March 4, 2013.)

Here's hoping I've got more good news to bring you three months from now.