Venture capital investment, which has been in a free fall for three years, fell even further in the first quarter of 2003 as economic uncertainty, war and other woes pushed down investment in new and fledgling companies to its lowest level in five years.<\/p>\n
“It’s no secret that these are difficult times, not only in world affairs but in terms of our economy,” said John S. Taylor, vice president for research at the National Venture Capital Association (NVCA). “A lot of factors that have been bringing these totals down . . . are still in play.”<\/p>\n
From January to the end of March, venture firms nationwide funded 623 companies with $3.8 billion, down about 12 percent from the previous quarter, according to the MoneyTree Survey conducted by PricewaterhouseCoopers, Thomson Venture Economics and the NVCA.<\/p>\n
Venture capital investment peaked in 2000, when $29 billion was invested. Since then, venture capitalists, or their clients, have pulled back for 12 straight quarters.<\/p>\n
Locally, venture investment activity was up slightly in the first quarter, to $254 million in 51 companies. Software remained the most prominent sector around Washington, accounting for about 45 percent of all deals. Just 131 first-time financings were reported in the first quarter, the lowest total in eight years. New investments are considered an indicator of the industry’s recovery because a jump would show that venture capitalists have worked through their post-bubble issues and begun looking at new opportunities.<\/p>\n
Nationally, a handful of billion-dollar funds have been cut in size, returning hundreds of millions of dollars to investors; company valuations remain low, depressing fund performance; and the receptivity of the public markets for offerings of venture-backed firms, the major way venture firms recoup their investments, has been nonexistent.<\/p>\n
“Valuations have come down just as the Nasdaq has come down, and that puts investors in a difficult position,” said Richard L. Harris of SpaceVest, a Reston venture capital firm. “The memories of the bubble bursting are still quite vivid.”<\/p>\n
Software remained the dominant industry for the receipt of venture capital investments last quarter, though the amount invested was off 13 percent. About $790 million was invested in 166 software firms, followed by 49 biotechnology start-ups that received $490 million.<\/p>\n
“Through this downturn, venture capital has returned to its roots,” said Tracey Lefteroff of PwC. “Software has perennially been the leader.”<\/p>\n
The industry breakdown also mirrors the results of a survey of entrepreneurs to be released today conducted by Springboard Enterprises, an organization supporting female entrepreneurs. It found that 38 percent of its alumnae were in software firms, followed by 22 percent in biotechnology companies.<\/p>\n
As the pace of investment has slowed, many of these new deals are taking longer to complete, Taylor said. But an uptick in new investments could happen later this year.<\/p>\n
“There is a story behind these numbers, and it is what we’re seeing from the field and what is being reported anecdotally,” he said. “There is an increased effort now to invest in new companies [although] it has not shown up in these numbers.”<\/p>\n
Reported By TechNews.com, http:\/\/www.TechNews.com<\/p>\n
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