April 20, 2009
Venture capital investments in the United States are tracking the economic meltdown, according to new surveys of venture capitalists, which have sharply cut back on their startup and later-round financings to levels of a decade ago.
The Money Tree venture capital survey reported that companies invested just $3 billion in 549 deals in the first quarter -- a drop of 61% from the same quarter a year ago. The figures represent a 47% drop in dollars and 37% drop in deals. Another VC survey, by Dow Jones VentureSource, reported similarly discouraging numbers, citing investments of $3.90 billion during the quarter, which was down 50% from the previous year's quarter. Information technology, often the flagship of VC investors, was down 52% to $1.68 billion from the $3.48 billion in the same quarter last year. "Technology companies have long been the primary focus of venture capitalists," said Jessica Canning, director of global research for Dow Jones VentureSource, in a statement. "But with a nonexistent IPO market and corporations paying less for venture-backed technologies, the incentive for investors to back new or unproven business models is just not there." The Money Tree report found IT investments, too, taking a big hit, although the report noted that financial services investments were up 26% to $106 million -- the sole sector that showed gains. The Money Tree report was prepared by PricewaterhouseCoopers and the National Venture Capital Association; their numbers were based on figures supplied by Thomson Reuters. "It's not unexpected that the VCs would pause to assess the impact on their portfolio companies before again looking forward to their next investment," said a spokesperson for the PricewaterhouseCoopers venture capital practice. The Money Tree report found that VC investments suffered a particularly sharp drop in green energy business financings. VCs put just $154 million in the sector in the first quarter compared with $1.1 billion during the first quarter of 2008.
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