Saturday's news that venture capital investments plunged in the first quarter to a level not seen since 1997 should erase any notion that the VC busniess is somehow recession-resistant. The latest report adds insult to injury, as earlier in the week the National Venture Capital Association, or NVCA, reported that fewer VC funds were raised in the first quarter than in any comparable period in more than five years. More bad news to the tech sector came Friday when California's Employment Development Department said that Silicon Valley's unemployment rate jumped to a record 11 % in March, the highest since the state tracked data for the region in 1990.
Venture capitalists invested just $3 billion in 549 deals in Q1, according to the MoneyTree Report from PricewaterhouseCoopers and the NVCA, based on data from Thomson Reuters. Quarterly investment activity was down 47 % in dollars and 37 % in deals from the fourth quarter of 2008, when $5.7 billion was invested in 866 deals. The quarter, which saw double digit declines in every major industry sector -- even clean tech -- marks the lowest venture investment level since 1997.
The clean tech sector, which includes alternative energy, pollution and recycling, power supplies and conservation, saw an 84 % decline in the dollar level from the fourth quarter of 2008 when $971 million went into 67 deals, making it the lowest investment level since 2005.
Seed- and early- stage investing was also hit hard, falling 45 % in terms of dollars and 40 % in terms of deals in the first quarter compared with the previous quarter.
Update: Union Square Ventures co-founder Fred Wilson provides evidence that suggests Silicon Valley is bearing the lion's share of the recession's damage to venture capital. "The total amount raised in Silicon Valley which was running between $8bn and $10bn per year dropped to an annualized rate of less than $5bn, a 50% reduction," blogs Wilson on Sunday. "At the same time, the total amount raised in New England, which was running between $3bn and $4bn, dropped to an annualized rate of below $2bn, a drop of 1/3. And in the NY Metro market, we saw a small decline, but nothing to get excited about." -- Mary Kathleen Flynn
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