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Venture capital investment hit a three-year low in the first quarter of 2008, declining 7% to $6.84 billion compared to the year-earlier period and marking a 4% drop in dealflow, according to statistics compiled by Dow Jones VentureSource. The numbers reflect an industry-wide trend, with only cleantech deals and information services (a segment that includes most Web-related companies) exhibiting significant increases. The biggest drag on the overall numbers came from the life sciences sector, where $1.74 billion invested in 142 deals represented a 42% drop in total investment from $3.06 billion in 175 companies in the first quarter of 2007. Gerry Langeler, a Portland, Ore.-based managing director with Seattle-based OVP Venture Partners, downplayed the effect of the current economic environment on the decline, noting anomalies of timing and sector influence. "Our experience is that dealflow continues to be great, and while some deals might have gotten done in December that could have closed in January, or others moved into April, there is no big change in volume," Langeler said. "Follow-on rounds might be getting a little harder to do, and we have certainly told our companies if they are raising money now to optimize for cash and not worry about dilution." Langeler said that while the initial public offering market remains dismal, most sectors still exhibit healthy acquisition markets, and he noted that exits have been particularly strong in life sciences, where investment has been weakest. Valerie Foo, a research manager with VentureSource in San Francisco, said that while it is notable that investment hit a three-year-low, the swing was not dramatic. "Compared to the fourth quarter of last year or the same period last year, when you look at the trends over the last six years it is not too shocking," Foo said. The one thing that was a little surprising was the percentage drop in healthcare, mostly attributable to biopharmaceuticals." Biopharmaceutical investment was down 59% at $771 million in 59 companies, compared to $1.89 billion in the first quarter of last year. Medical device investment fell just 15% with $866 million in 67 deals. Chris Lien, founder and CEO of online advertising software maker Marin Software Inc., which closed a $7.5 million Series B round near the end of the quarter, was a beneficiary of the strongest investment sector overall. Information services drew $1.59 billion in 170 deals, representing a 104% increase over the first quarter of last year. Overall, the investment climate has not changed dramatically in reaction to the current uncertainty in the overall economic outlook. "I always take these things with a grain of salt, because VCs are never as up or down as people seem to think," Lien said. "When you consider that it takes two to five years to build a company, it's often when the market is slow that they make their best investments, and while they may have invested less, the total amount of capital they have committed to funds is still a tremendous amount." Foo said that the most dramatic results came in the area of cleantech, with four of the 20 largest deals coming in the energy area. VentureSource is refining its investment sector definitions for future reports, she said, and while cleantech deals cut across different sectors, energy, agriculture and advanced specialty chemicals and materials drew $532 million in investment in 34 deals, up from $368 million in 22 deals last year. Information technology deals also held their own, with investment climbing 20% to $3.88 billion over $3.24 billion last year, and the number of deals growing from 358 to 373. When broken down by stage, investment statistics skewed toward more mature companies, with later-stage rounds drawing 39% of the total investment compared to 32% last year. Investment by geography saw no dramatic shifts, with California drawing 46% of dealflow. -- Clifford Carlsen
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