December 10, 2007

Half Full /Half Empty, Vol. 4, VC$ by Category

(c) copyright View from Silicon Valley, 2007.  All rights reserved.



Washington insists the US economy is strong.  Wall Street assures us "all is well."  In true California style, Sacramento insists there is no problem which cannot be overcome with a positive attitude (and maybe another bond issue).

This is our fourth missive on Silicon Valley-specific statistics.  How your situation is personally affected by these results, probably dictates your opinion of the Silicon Valley economy.

Today's figure or merit is venture capital (VC) funding "by category."

The last seven years of Silicon Valley VC spending is updated quarterly at: http://www.viewfromsiliconvalley.com/id112.html.

Near and dear to our heart is Information Technology but we'll look at all three to properly paint the picture.

Starting with 1998, the breakdown was:

          US&   
Tot US  Dollars   Ret/Con Health    IT
1998    $17.9      19.6%   19.6%   59.8%
1999    $49.5      31.5%   10.3%   58.0%
2000    $94.5      27.1%    9.9%   62.5%
2001    $36.3      16.0%   18.2%   64.5%
2002    $22.0      11.4%   25.9%   59.5%
2003    $19.4      11.3%   30.4%   53.1%
2004    $22.0       8.6%   31.8%   57.3%
2005    $22.8      12.7%   30.7%   53.5%
2006    $25.7      10.1%   31.9%   53.7%
2007*   $30.3       8.9%   34.3%   48.5%     *= run rate thru 3Q07

Editor's note:  Categories do not add up to 100% due to exclusion of "other" category.

Nationwide, over a 10-year horizon, Retail/Consumer (-10.7 share points) and IT (-11.3) lost VC market share to Healthcare (+14.7) and "Other" (+7.3).

One conclusion might be that it's a good time to be in healthcare while  Retail/Consumer is eroding.  IT is roughly flat while it loses share just slightly more slowly than total VC funding grows. (1998 VC IT funding at $10.7B grew to $14.7B in 2007 for a gain of ~3% per year which is below most people's experience with inflation...)

If you're in Healthcare and looking for VC funding, your cup is at least half-full.  Retail/Consumer entrepreneurs probably see it half-empty while IT folks are working twice as hard just to run in place.

Narrowing our scope to Silicon Valley VC funding:
        SV&
Year  Dollars Ret/Con   Hlth    IT
1998    $5.6   16.1%   14.3%   69.6%
1999   $18.4   31.0%    7.1%   62.5%
2000   $33.6   26.8%    7.4%   64.6%
2001   $11.7   12.0%   12.0%   73.5%
2002    $7.5    8.0%   20.0%   70.7%
2003    $6.8    7.4%   23.5%   66.2%
2004    $8.2    4.9%   25.6%   68.3%
2005    $8.1    6.2%   24.7%   72.8%
2006    $9.0    6.7%   22.2%   66.7%
2007*   $9.7    6.2%   27.8%   60.8% *= run-rate thru 3Q07

&= expressed in billions

In Silicon Valley over that same 10-year horizon, Retail/Consumer lost (-9.9 share points), IT lost (-8.8) and Healthcare gained (+13.5).  ("Other" racked up the remaining +5.2 share points.)

VC deals in Silicon Valley are more likely to be IT-related (60.8% in SV to only 48.5% nationally) but SV IT is still losing share.

Similar to the national picture, Silicon Valley start-ups in Healthcare looking for VC funding probably see their cup half-full.  Retail/Consumer entrepreneurs probably see it half-empty and IT is working hard to get ahead.

On a side note, what's missing when looking at numbers at this level is the types of technology deals being made.  If you have a "green" story in technology, or otherwise, you may also see the proverbial cup as half-full.

Said another way, the news in IT may be "worse" than it appears since.  Judging by various headlines and buzz, "global warming" and Al Gore's Nobel prize are making "green" technologies very popular.  Local new stories make it seem like a number of IT deals are "green"-focused and therefore displacing traditional semiconductor, software, networking, etc., deals.

Conclusion:
"By category" VC funding clearly shows Healthcare deals are growing.  On a market share basis, Healthcare is winning at the expense of Retail/Consumer.

IT may be worse off than implied by these top-line figures.