U.S. Venture Investment Lowest in 11 Years, Down 50% to $3.9 Billion in First Quarter
April 18 2009 - 12:05AM
PR Newswire (US)
Dow Jones VentureSource: Investment at Lowest Level Since 1998,
Deals at a 13-Year Low; VCs Making Choice Investments,
Concentrating on Established Companies SAN FRANCISCO and NEW YORK,
April 18 /PRNewswire/ -- New data from Dow Jones VentureSource
shows that the U.S. venture capital industry continued to contract
in the first quarter of the year. Venture capitalists invested just
$3.90 billion in U.S. companies in the quarter, a 50% decline from
the nearly $7.78 billion invested over the same period in 2008 and
the lowest quarterly investment total since 1998. Only 477 venture
deals were completed in the quarter, well below the 706 deals done
in the first quarter last year and the industry's lowest quarterly
deal total since 1996. "We're seeing continued retrenching in the
venture capital industry," said Jessica Canning, Director of Global
Research for Dow Jones VentureSource. "Over the past several
quarters, VCs have pulled back significantly on early stage
investments in the U.S., across all industries. During the economic
downturn, investors will continue to focus on nurturing their
strongest, existing portfolio companies, and keep their eyes open
for the next set of opportunities." IT Industry Walloped:
Investment, Deals at 90s Levels According to VentureSource, the
Information Technology (IT) industry saw its lowest level of
investment since 1997 with $1.68 billion invested in 231 deals in
the first quarter of 2009. This marks a 52% drop-off from the $3.48
billion that was invested in 370 such deals during the same period
last year. The deal count is the lowest for the IT industry since
1995. Notably, the software sector saw $728 million invested in 117
deals during the quarter, a 50% decline from the same period last
year when nearly $1.46 billion was invested in 163 deals. This
marks the lowest quarterly investment in software since 1997 and
the sector's smallest deal count since 1995. "Technology companies
have long been the primary focus of venture capitalists," said Ms.
Canning. "But with a non-existent 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 information services sector, which includes most of
today's Web 2.0 technologies, saw investment and deal flow fall
back to the levels seen in 2005. Information services companies
attracted $323 million in 55 deals during the first quarter, down
more than 61% from the record $828 million invested in 116 such
deals a year ago. Health Care Sees Smallest Drop The Health Care
industry saw investment and deal flow fall to their lowest levels
since 2003. According to VentureSource data, $1.35 billion was
invested in 118 health care deals in the first quarter of the year,
a nearly 34% drop from the $2.04 billion in 162 deals during the
same period in 2008. By sector, biopharmaceutical investment
slipped 21% from $918 million in 69 deals in the first quarter of
2008 to $723 million put into 56 deals in the most recent quarter.
Medical device companies saw investment fall 51% from the $972
million put into 74 deals last year to $477 million invested in
just 42 deals in the most recent quarter. Even Energy Investment
Crashes Back to Earth The Energy & Utilities industry garnered
$189 million in 15 deals during the first quarter, down 59% from
the $457 million it saw invested in 24 deals last year. The
renewable energy sector, which makes up the backbone of the
industry-spanning "cleantech" category, accounted for the bulk of
the industry's investment in the first quarter with $117 million
put into nine deals. This represents a 73% decline from the $427
million invested in 16 renewable energy deals in the first quarter
of 2008. Elsewhere, the Business and Financial Services industry
attracted $467 million in 69 venture deals during the first
quarter, down 50% from the $927 million invested in 94 deals over
the same period last year. The Consumer Services industry saw $144
million put into 26 deals in the first quarter, down 70%. The
smaller Consumer Goods and Industrial Goods & Materials
industries both saw investment tallies fall below the $50 million
mark to $30 million and $28 million, respectively. Deal Size
Shrinks as More Money Goes to Older Companies "Not only did venture
capitalists back fewer companies in the first quarter but invested
less money in the deals they did do deals," said Ms. Canning. "Much
of this capital went to established, older portfolio companies to
help them ride out the economic storm." According to VentureSource,
the median deal size fell to just under $2.4 million in the
quarter, down 73% from the $9-million median seen a year ago and
the smallest quarterly deal size since 2002. Later-stage financing
rounds accounted for 55% of all venture investment in the first
quarter of 2009, up from 47% in the same quarter last year. By
comparison, the proportion of seed and first-round investment was
just 18% in the first quarter, down from 25% in the same quarter
last year. The proportion of second-round investments held steady
year-over-year at 23%. Recapitalizations accounted for 4% of
investments in the first quarter of 2009 and 5% in 2008. Regional
Perspectives California dominated venture capital activity in the
first quarter, representing 42% of the nation's deal flow and 47%
of the capital invested. By major region, the VentureSource data
showed that: -- The San Francisco Bay Area attracted the majority
of capital, but saw investment fall 57% to $1.14 billion with 139
deals complete--the region's lowest investment and deal totals in
at least a decade. -- New England garnered $594 million in 61
deals, nearly 16% less than what the region saw invested in the
first quarter of 2008. -- Southern California saw investment drop
35% year-over-year to $462 million with 58 deal completed in the
first quarter of 2009. -- The New York Metro region attracted $390
million in 46 completed deals, 40% off from a year ago when $655
million went to start-ups in the region. -- Investment in Texas
came in at nearly $173 million with 23 deals done, off more than
52% from a year ago. -- It was a similar story in Washington State,
where investment dropped 53% to $115 million in 22 deals. --
Investment in the Potomac region fell more than 72% to $104 million
with only 15 deals completed in the first quarter. -- Five venture
deals were completed in North Carolina's Research Triangle region
in the first quarter, accounting for $17 million in investment. For
more information, journalists can contact Adam Wade at 415-439-6666
or , or follow the story at http://www.twitter.com/djventurewire.
For general information about VentureSource, visit
http://venturecapital.dowjones.com/. The investment figures
included in this release are based on aggregate findings of Dow
Jones proprietary U.S. research and are contained in VentureSource.
This data was collected by surveying professional venture capital
firms, through in-depth interviews with company CEOs and CFOs, and
from secondary sources. These venture capital statistics are for
equity investments into early stage, innovative companies and do
not include companies receiving funding solely from corporate,
individual, and/or government investors. No statement herein is to
be construed as a recommendation to buy or sell securities or to
provide investment advice. Copyright (C) 2009 About Dow Jones Dow
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CONTACT: Adam Wade of Dow Jones Financial Information Services,
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