WASHINGTON DC Venture capital investment nationwide was strong again in the first quarter, lead by the Life Sciences sector, the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey reported. Michigan’s VC investing in Q1 nearly tripled.

Nationwide, Venture Capital investment of $4.6 billion went to 618 companies, well below the $5.2 billion invested in the fourth quarter of 2003, but well above the same period last year when investments in Q1 2003 totaled $4.2 billion.

Whats more, the first quarter ranked n the middle range of investments recorded over the past seven quarters, which have consistently been between $4.2 billion and $5.2 billion.

In Michigan, total VC investment was $49.1 million during the first quarter nearly tripled from $18.4 million in the first quarter a year ago.

Michigan companies receiving funding during the first quarter of 2004 were:

Discera, Inc., Ann Arbor; Telecommunications $12,200,000 – Develops components for wireless communications

EcoSynthetix, Inc., Lansing; Industrial/Energy – $8,700,300 – Specializes in the research and development of bio-based technologies

HeathMedia, Ann Arbor; Media and Entertainment – $1,000,000 Operates as a lifestyle management and disease prevention company

Michigan Seamless Tube, South Lyon; Industrial/Energy – $2,900,000 – Manufactures seamless tubes for industrial applications

Nexcerpt, Kalamazoo; Software – $25,000 – Provides information retrieval, expert annotation and knowledge publishing

STM Power, Ann Arbor; Industrial/Energy $24,300,100 – Develops high efficiency, low emissions power generating system

Venture capital investment levels in Michigan companies remain essentially stable – a good sign that venture capitalists are feeling confident, said Jackie Goforth, leader of the PricewaterhouseCoopers Detroit Technology Practice. We had a noticeable uptick in venture capital investments this quarter due, in part, to one large investment.

The number of deals in which Michigan-based venture capital funds invested decreased from 7 deals in Q4 2003 to 4 deals in Q1 2004. During Q1 2003, 9 deals were reported.

The Michigan uptick mirrors a national resurgence in VC investment.

Optimism is becoming pervasive as opportunities for liquidity events improve, especially in the Life Sciences sector, said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. Entrepreneurs are still under pressure to make dollars work harder, but capital is flowing in at a healthy rate. Its the kind of market that can generate successful companies and sustainable returns.

Life Sciences companies (Biotechnology and Medical Devices, together) continued to dominate other industries as they have for the past six consecutive quarters. Investments in the sector totaled $1.3 billion, or 27 percent of all venture capital. Proportionately, Life Sciences investing remained near its 12-year high reached in 2003. Biotechnology alone accounted for $943 million or 20 percent of all investing. Medical Devices garnered $325 million, or 7 percent. A total of 71 Biotechnology companies and 51 Medical Device companies were funded during the quarter.

The Software Industry inched back into the top slot in the first quarter of 2004 as the single largest industry category after being pushed into second place the last two quarters by Biotechnology. Software companies garnered $956 million going into 162 companies, down slightly from the prior quarter. Investments into the Telecommunications Industry increased slightly in Q1 2004 from the prior quarter in terms of both dollars invested and the number of deals with $547 million going to 65 companies.

First-time financings were essentially flat, despite anecdotal buzz of a resurgence. A total of 158 companies received their first-ever round of venture capital in Q1 2004, down from 186 in the prior quarter. However, they represented 26 percent of all companies receiving funding in the period, about the same proportion as in the prior quarter. Similarly, they accounted for $886 million in first quarter or 19 percent of all dollars, about the same percentage as in the fourth quarter of 2003.

The proportion of companies receiving funding at each stage of development has steadily drifted toward later stage companies during the past two years. Over the same period, the average time between financing rounds has increased while the average dollar amount of funding has decreased. With few exceptions, entrepreneurial companies are doing more with less, and for longer periods.

Later stage funding was $1.4 billion in Q1 2004, or 30 percent of all investing compared to 22 percent of all investing two years ago. During that period, the average amount per company fell from $11.7 million in Q1 2002 to $10.6 million in Q1 2004. And, the average time between rounds increased from 11.9 months to 15.7 months.

The same pattern applied to Expansion stage companies, which typically account for the largest total dollars and number of deals. Expansion stage funding was $2.4 billion in Q1 2004, or 52 percent of all investing compared to 59 percent two years ago. In that time, the average amount per company fell from $9.4 million to $8.7 million. And, the average time between rounds increased from 12.2 months to 15.5 months.

Early stage companies were less affected. Investments in Q1 2004 were $790 million, or 17 percent of the total compared to 18 percent in Q1 2002. At the same time, the average amount per company fell from $5.2 million to $4.6 million. But, the average time between rounds shortened slightly from 12.4 months to 11.9 months.

These are signs that venture investments are actually healthier than they have been in the last few years, said Jesse Reyes, vice president at Thomson Venture Economics.

The lengthened time between rounds demonstrates the importance of performance milestones as a condition of subsequent funding. The relatively larger decline in average funding for early stage companies reflects valuations that are still low, which is commensurate with the higher risk. However, there appears to be some mitigation on valuations of expansion and later stage companies as venture firms seek to deploy larger amounts of capital in operating companies closer to exit events.