BLOOMFIELD HILLS ? Michigan venture capital funds did five deals during the first quarter of 2005, up from just three investments in the quarter before, PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association Money Tree Survey reported Monday.

One investment each was made by Beringea, Dow Chemical Company, EDF Ventures, Ford Motor Company, and WayPoint Ventures. A year ago in the first quarter, four deals were done in Michigan.

Nationally, venture capitalists invested $4.6 billion in 674 companies in the first quarter of 2005, theMoneyTreeSurvey reported. The first quarter number was $800 million below the Q4 2004 total of $5.4 billion, but matched Q3 2004 of $4.6 billion. Over the past two years, quarterly investing has floated from $4.4 billion to $5.9 billion.

First-time fundings inched up near a two-year high of $1.2 billion in 197 companies on the strength of relatively more mature companies receiving their first round of venture capital. And, Life Sciences investing abated for the first time in two years.

First-Time Financings

First-time financings have been trending slightly upward over the last two years. The increase to $1.2 billion in the first quarter compared to an average of $1.1 billion last year is notable in that it accounts for 26% of all venture capital funding compared to 21% last year. This was the highest proportion since 2000.

The strength in Q1 2005 was attributable to a diverse mix of companies receiving venture capital for the first time. Companies in the Early stage of their development typically account for the bulk of first-time investing. While that remained true in Q1 2005, several companies in the Expansion stage of development secured significant initial venture capital. And, these companies generally require larger investments. In the first quarter, 123 Early stage companies attracted an average of $4.5 million per company for their first round of funding, while 36 Expansion stage companies got an average of $11.4 million, and 9 Later stage companies an average of $20.1 million each.

Further, first-time investing encompassed a wide range of industry categories including Financial Services, Industrial and Healthcare Services alongside the expected Technology and Life Sciences companies.

Sector and Industry Analysis

After two years of dominance, the Life Sciences sector (Biotechnology and Medical Devices industries, together) fell significantly in Q1 2005 to $1.08 billion, compared to $1.6 billion in Q4 2004 and the lowest amount since Q1 2003. A total of 129 Life Sciences companies were funded versus 162 in the prior quarter. The sector accounted for 19% of all deals and 23 percent of all dollars during the period ? still a solid level, reflective of recent market conditions.

The Software industry remained the largest single industry category with 198 companies capturing $1.1 billion. Though both figures were down slightly from the prior quarter, Software represented 24 percent of all venture capital dollars, and 29 percent of all deals, in line with historical norms.

Telecommunications investing continued to slide with 58 companies garnering $371 million, well below its average over the last two years. The Networking industry turned up slightly to $348 million in 40 companies, but still languished below its two-year average.

IT Services bounced to two-year high of $302 million on the strength of a single large deal. For the same reason, Industrial/Energy increased in the quarter. Both industries are likely to hew closer to historical norms in the coming year. Other major industry categories were generally consistent with investment activity seen over the prior year.

Stage of Development and 12-Month Average Valuations

Funding by stage of development saw Later stage decrease slightly in Q1 2005 to $1.8 billion. This amount still represented 40% of all venture capital, the same proportion as last quarter and a 10-year high. However, the average post-money fell to $60.6 million for the 12 months ending Q4 2004 compared to $70.2 million for the Q3 2004 period. (Note that valuation data lags investment data by one quarter.)

Of particular note, the 16 percent of all venture capital investing going to Early stage companies in Q1 2005 fell only slightly from the 18 percent in the prior quarter. The dollar amount of funding decreased to $752 million in Q1 2005 versus $958 million in Q4 2004. A total of 200 Early stage companies received funding, representing 30 percent of all deals, the same proportion seen in the last year. Average post-money valuations turned down slightly to $14.9 million for the 12 months ending Q4 2004 compared to $16 million for the period ending Q3 2004.

Investing in Expansion stage companies dropped slightly versus the prior quarter to $2.0 billion in Q1 2005. This represented 43% of all venture capital, slightly below the average over the past year. Average post-money valuations increased slightly to $58.6 million versus $55.9 million for the prior period.