BLOOMFIELD HILLS After nearly tripling in the first quarter of 2004, Michigan Venture Capital investment in the second quarter plummeted by nearly a factor of ten, the PricewaterhouseCoopers/Thompson Venture Economics/National Venture Capital Association Money Tree Survey reported Monday.

Four Michigan companies in the biotechnology, medical equipment, and electronics industries received a total of $4.2 million during the second quarter of 2004, compared with $37.4 million invested in the same quarter of 2003 and $49.1 million in the first quarter of this year.

In the second quarter, the number of investments in Michigan companies remained stable, but the amount being invested dropped dramatically, noted Jackie Goforth, leader of the PricewaterhouseCoopers Detroit Technology Practice. This is contrary to the trend nationally in the second quarter.

Nationally, the steady upward trend in venture capital continued in the second quarter of the year with investments of $5.6 billion going into 761 companies. This figure compares to $5 billion invested in the first quarter of 2004 and $5.4 billion in the fourth quarter of 2003. Over the past two years, quarterly investing has drifted upward at a deliberate pace, ranging from $4.3 billion to this quarters high of $5.6 billion.

Michigan companies receiving funding during the second quarter of 2004 include:

Akonni Biosystems, Gregory; Biotechnology $50,000 – Develops novel DNA gel-pad microarray technologies.

Genetics Squared LLC, Milan; Medical Devices and Equipment – $1,000,000 – Delivers personalized medicine.

HandyLab, Ann Arbor; Medical Devices and Equipment – $2,149,000 Develops DNA analyzing chip devices.

Mobius Microsystems, Ann Arbor; Electronics/Instrumentation – $1,000,000 – Provides solutions for analog and mixed-signal semiconductor integration.

In comparison, during the first quarter of 2004, six Michigan companies received funding, lead by:

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

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

On the other hand, the number of deals in which Michigan-based venture capital funds invested increased from 4 in Q1 2004 to 6 in Q2 2004. Those include:

Arbor Partners 1

CrystalPoint Partners 1

EDF Ventures 1

North Coast Technology Investors LP 2

University of Michigan 1

We see refined optimism in the national market. Investment levels are realistic, not exuberant, said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers. There is a more balanced mix of investing between earlier and later stage companies. And, the IPO window is open, though temperate. The pieces are in place for solid years ahead.

Nationally, 229 companies in the early stage of development were funded in Q2 2004, the highest since Q2 2002 accounting for 30 percent of all companies, the highest percentage since Q1 2001. Early stage companies captured $1.17 billion or 21 percent of all venture capital in the period, well above recent quarters. Average funding per company of $5.1 million exceeded the $4.6 million average over the prior four quarters. Further, the average valuation of early stage companies inched upward after three years of decline. The average post-money valuation for the 12 months ending Q1 2004 was $13.1 million, compared to $12.6 million for the period ending Q4 2003.

Expansion stage companies, which typically account for the largest total dollars and number of deals increased slightly, as well. Expansion stage funding was $2.8 billion in Q2 2004 or 50 percent of all investing, compared to $2.6 billion and 51 percent in Q1 2004. Average funding per company at $8.1 million exceeded the $7.5 million average over the prior four quarters. Valuations rose more significantly. The average post-money valuation for the 12 months ending Q1 2004 was $50.3 million, compared to $41.9 million for the period ending Q4 2003.

Later stage funding was flat. Investments in Q2 2004 were $1.6 billion or 28 percent of all investing versus $1.6 billion and 31 percent of all investing last quarter. Average funding per company was $11.3 million, up from the $9.6 million average of the last four quarters. Valuations also increased. The average post-money valuation for the 12 months ending Q1 2004 was $71.8 million, compared to $61.3 million for the period ending Q4 2003.

First-time fundings in the Life Sciences sector jumped significantly in dollars invested with $232 million this quarter compared $142 million in Q1 2004. But, the number of new Life Sciences companies was flat at 39. The number of Software companies increased from 42 in the first quarter to 51 in Q2 2004. At the same time, the dollar amount of funding fell from $290 million to $250 million in Q2 2004.

No other industries demonstrated a marked change from recent trends with the exception of an unusually large first-sequence deal in the Media & Entertainment industry and drop in the Semiconductor industry attributable to relatively smaller first round dollar amounts.