Venture Capital Investment Fell 33% Last Quarter to Lowest Level Since ’05
By Tim Mullaney
Jan. 26 (Bloomberg) -- Venture-capital investment dropped 33 percent in the fourth quarter of 2008, hammered by a recession that drove software deals to their lowest levels in a decade and cut access to capital for alternative energy firms.
Total investment in startup companies fell to $5.4 billion, the lowest total since early 2005, the National Venture Capital Association and PricewaterhouseCoopers LLP said in a study released last week. Investments for the full year fell 8 percent, the first drop since 2003.
Venture capitalists pulled back from computer, biotechnology and energy companies. Investment dropped most for older startups that are close to being ready to go public or be sold to larger companies. That group received 39 percent less money in the fourth quarter from a year earlier. The failure of Lehman Brothers Holdings Inc. in September spooked investors.
“The big a-ha moment came when Lehman got thrown under the bus,” Pascal Levensohn, a partner at San Francisco venture firm Levensohn Venture Partners, said on a conference call. “It made everyone think that their business assumptions for 2009 should be retested.”
Software investing dropped to $1 billion, the lowest quarterly level in 10 years, the report said.
Investment in seed-stage companies, the least mature firms, fell 37 percent in the quarter, the report said. That brought the year’s total of companies that got their first venture financing to 1,171, a 10 percent drop from last year.
‘Soft Quarter’
“The fourth quarter was a soft quarter, but more than 1,100 companies had their business plans accepted and moved into the pipeline,” said John Taylor, vice president of research at the National Venture Capital Association.
Another industry that ran into trouble landing financing was renewable energy. Investment in clean technology dropped 14 percent to $909 million, the association said. Clean-energy companies can be riskier than many other startups because they are capital intensive, Levensohn said.
The dearth of initial public stock offerings is curbing investments in new companies, as venture capitalists focus on their existing portfolios, Taylor said. Only six venture-backed firms went public in 2008.
“You’ll see a pickup in venture investing, maybe not in the first half of 2009, but certainly through the year,” said Tracy Lefteroff, global managing partner for PricewaterhouseCoopers’ venture-capital practice. “A lot of clients think the valuations are the most attractive they have seen in a couple of years.”
To contact the reporter on this story: Tim Mullaney in New York at tmullaney1@bloomberg.net
Last Updated: January 26, 2009 00:01 EST |
