M&E sector's investments up in Q3

Modest gains keep investments above historical norms

The Media & Entertainment industry saw a slight up tick in VC investments in Q3. The number of deals rose from the 72 logged in Q2 to 75, a four% increase. Dollars did slightly better, rising almost 14% from $353 to $402 million. Both figures indicate steady, sustainable growth that continues to rise above historical norms. What's of real interest, however, is the size of some of the deals--Q3 saw six deals valued at $15 million or more.

More big deals' detail

There was plenty of money to be had this quarter, and most was given to cutting-edge companies leading the way in media & entertainment delivery. Taking home first prize was The Active Network, Inc., with $35 million in funding. Based in San Diego, Calif., The Active Network provides application services technology and marketing access to community service organizations and is a leading online community for active lifestyles. The company's application services help organizations increase efficiency and reduce the cost and complexity of managing community activities and fundraising events, providing technology that automates information collection, activity registration, facility reservation, membership and fundraising management.

Coming in second--with $32 million--was Hollywood-based Ripe Digital Entertainment, Inc. (RDE). RDE is a leader in Video-On-Demand digital entertainment and the first to develop a multi-platform video network. RDE aggregates and produces short-form video programming targeted at young adult audiences for simultaneous distribution over cable, broadband and wireless platforms. RDE pioneered "Connective Advertising?," which gives marketers and viewers an enhanced video experience across all platforms. The company is the first to sell television advertising on a cost-per-view basis.

Rounding out the top three deals is Xpressdocs, Inc., a Fort Worth, Texas company snagging $27.8 million in funding. Founded in 1998, Xpressdocs is a leading provider of high-quality, on-demand print-based marketing programs and services to the residential real estate and other industries. Xpressdocs has grown rapidly since its founding and currently provides high quality, next-day turnaround marketing materials to over 30,000 real estate agents and other franchise and agent-based professionals at some of the nation's most recognized service companies.

Other deals of note included $20 million to Ecast, Inc. a broadband jukebox company in San Francisco and $15 million each to DiVitas Networks, Inc. a mobile-to-mobile communications company in Mountain View, Calif. and Podshow, Inc., a San Francisco-based media network company.

California -- The place you ought to be

California remained the clear favorite for M&E investing in Q3, with 32 deals valued at $220 million; $132 million was concentrated in Silicon Valley alone. New England, New York and Washington, D.C., in descending order, combined to bring in 22 deals worth a total of $85 million. Interestingly, the state of Texas had five deals valued at $43 million.

Content still leads the pack

The Internet Content subsector once again led the quarter completing 36 deals valued at $183 million, representing 46% of the dollars and 48% of the deals closed within the industry. Internet ECommerce also had a good showing garnering 27% of the deals and 26% of the dollars or 20 deals valued at $103 million. Commercial communications came in third, with 10 deals valued at $82 million. The quarter's least attractive sector, Entertainment & Leisure, scored only nine deals worth $34 million.

In summary

Overall, Q3 brought modest gains in both deals and dollars to the M&E industry. There were several sizable deals in the quarter and the continued growth of activity in the earlier stage companies provides evidence that investment in the sector overall will continue at a moderate--and more importantly--sustainable level.

This article is based on results from the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data provided by Thomson Financial. The report is a quarterly measure of cash-for-equity investments by the professional venture capital community in private, emerging companies in the U.S. For more information or to download an executive summary of this quarter's results, please visit www.pwcmoneytree.com.
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