The economic malaise stalking the U.S economy appears to be taking a toll, albeit small, on high-tech startups, according to a report analyzing venture capital investments in the second quarter of 2008.
The MoneyTree Report released on Monday revealed that venture capitalists invested $7.4 billion in 900 total deals in the second quarter. While that figure held steady with the $7.5 billion invested in the first quarter, the dollar value of first time deals declined 12%.
"The percentage of dollars going into first-time financings is the lowest since the fourth quarter of 2004 when 21.1% of total investments went to companies receiving venture capital for the first time," the report stated, adding that the 5% drop in deals showed that first-time investing was $1.8 billion in the first quarter and $1.6 billion in the second quarter.
The MoneyTree Report was compiled by PricewaterhouseCoopers and the National Venture Capital Association (NVCA) from data provided by Thomson Reuters.
Expressing hope that the statistical shortfall in venture investing will be a minor blip in the long sweep of business enterprise investing, Mark Heesen, president of the NVCA, said: "The venture industry is operating under the same long-term philosophy it has adhered to historically. Venture firms are prepared to invest for 5 to 10 years and will stick with their companies through difficult times."
Heesen suggested that the difficulty of firms and venture capitalists conducting IPOs to raise funds for their investments is making it necessary for venture capitalists to continue to finance their early-stage investments with later-stage infusions of capital while pulling back from initial rounds of startup investment.
Even so, investments continued strong. The software industry was the top industry sector in terms of deals and dollars as it racked up $1.25 billion in venture investments for 219 deals in the second quarter.
The MoneyTree report, which views investments across different sectors, sometimes duplicative, found that Internet-specific companies were given $1.5 billion for 238 deals in the second quarter. The figure represents a 14% increase over the first quarter, suggesting that the allure of investing in the Internet hasn't faded. The report's authors noted that its "Internet-specific" category is a discrete one that is assigned to companies with business models that are fundamentally dependent on the Internet regardless of the company's primary industry category.