New England companies reported the highest level of venture capital investment for a first quarter in five years, according to a report released this past week.
The rise in VC dollar volume followed the trend nationally, where venture capital flowed freely in the first quarter — fueled by increased backing of information technology companies.
New England posted $1.03 billion in capital investment — a 28 percent increase compared with the same period last year, according to the Dow Jones VentureOne and Ernst & Young LLP report.
The region’s firms reported 77 deals total during the quarter, five more than the year-ago quarter.
Topping the list of New England venture fundings was Cambridge’s ITA Software Inc., which took in a $100 million first round, followed by Microbia Inc., also in Cambridge, which received $75 million.
The median size of a round of financing in the first quarter was $7.5 million, up from $6.8 million a year ago. It was the highest median round size since the fourth quarter of 2000.
Both health care and IT median round sizes were $7.5 million, while the median round size for a products and services deal was $6.4 million, the report says.
Charles Lax, managing general partner of Newton Center-based venture capital firm GrandBanks Capital Inc., said a rise in round sizes typically indicates more later-round fundings than earlier rounds.
“If anything,” Lax said, “it shows that there’s a lot of capital out there chasing deals.”
Nationally, venture capital investment during the first quarter increased 18 percent compared with a year ago, reaching $6.01 billion in 564 deals.
New England’s $1.03 billion in investments ranked the region No. 2 nationally behind the San Francisco Bay Area, which posted investments of $1.92 billion.
Nationally, the number of quarterly deals increased 6 percent compared with 2005 and the amount invested was the most venture capital spent in a first quarter since 2001.
Investment in information technology accounted for 327 deals worth $3.36 billion, the most capital invested in IT companies quarterly since second-quarter 2004, the report says.
The capital needs of private companies seeking an eventual exit transaction, whether an acquisition or an initial public offering, is at one of the highest points in the past 10 years, said Joe Muscat, Americas director of the Ernst & Young Venture Capital Advisory Group.
Increased investing is typically preceded by a rise in IPOs or mergers and acquisitions, combined with a strong stock market two or three quarters earlier, according to Lax. Three quarters ago, during second-quarter 2005, M&As nationally reached $8.4 billion — the highest level of such activity since the fourth quarter of 2000, according to Dow Jones VentureOne.
Those factors boost investor confidence, which translates into more investing, said Lax, who said he hadn’t reviewed the most recent quarter’s data yet.
“That creates a positive set of thinking on the part of investors,” Lax said. “It’s primarily psychology.”
