“US venture capital investors put $8.4bn into 765 deals during the third quarter of 2011, a 29 per cent increase in investment and an eight per cent increase in deals from the same period last year.According to Dow Jones VentureSource, the median amount raised for a round of financing during the third quarter was $6m, up from the $5m median a year earlier…
“Venture investment rose in the third quarter, putting the industry on pace to near pre-recession investment levels by the end of the year,” said Jessica Canning, global research director for Dow Jones VentureSource. “While it’s unclear how long venture capitalists can continue at this pace given the weak fund-raising and difficult exit environments, the increase in deal activity, especially among early-stage start-ups, shows VCs are optimistic they will be able to support the next generation of start-ups.
WHAT THIS MEANS FOR THE BDC INDUSTRY
For the BDC industry as a whole, all the money being pumped into venture deals does not have much impact. Most BDCs run the other way when the terms “venture capital” and “start-up” are mentioned. However, there are two income-oriented BDCs which do operate in this very specialized market; typically providing debt capital alongside the venture capitalists. The main player is Hercules Technology (ticker:HTGC), which usually makes a big point about venture capital flows when discussing the health of their business. Then there’s newcomer Horizon Technology Finance (ticker: HRZN), which is made from the same mold as HTGC. Both companies should be encouraged by the level of activity in the last quarter, which suggests more transactions to pick from and a general optimism in the sector. Both companies will be reporting soon, and we’ll see.
AFTERWORD
We should also mention that TICC Capital (ticker: TICC) used to be active in the broadly defined “technology” space, but their interest in booking loans in the same form as HTGC and HRZN has changed.
