Earlier this week the University of San Francisco
reported that confidence among venture capital investors in Silicon Valley had touched a new low. That sentiment is matched by their investments.
VCs invested $7.37 billion in the third quarter, down 7% from $7.94 billion in the year-ago period, according to new
data from Dow Jones VentureSource. The quarter-over-quarter decline to $7.47 billion in the second quarter was a more modest 1.3% decline. VCs also are being more discerning about where they put their money. That $7.37 billion invested in the third quarter was distributed among 537 companies, down 20% from the 673 companies that were funded in the third quarter of 2007.
"Clearly, the current economic crisis is already impacting the venture industry, which has traditionally been relatively insulated from fluctuations in the broader economy," says Jessica Canning, director of global research for Dow Jones VentureSource, in a statement. "With the IPO market likely to be shut down for some time, venture capitalists are pulling back on investments in technology companies as well as in areas like business and financial services and media, content and information that are likely to suffer from a decline in advertising and enterprise spending."
The continuing bright spot in VC continues to be cleantech, with 32 investments in the energy and utilities industry worth a total of $1.18 billion, the first time the sector has topped the $1 billion mark. That funding levels amounts to a 90% increase from the year-ago quarter, when $620 million was invested in alternative energy startups, and a 49% increase on the $795 million invested in the sector last quarter. However, 18 of the 35 deals accounted for $1.08 billion in investments, with the majority of that capital going to solar companies.
Other industries were less fortunate. Information technology companies saw deal flow drop to its lowest point in more than a decade, with a 21% decline in investment to $2.73 billion, from $3.44 billion, and deals (to 270, from 342). The Web-heavy consumer services industry also saw an investment pullback, declining 47% to $151 million, from $286 million in 2007. After two consecutive down quarters, the healthcare industry rebounded, but still saw a 2% dip to $2.16 billion, from $2.2 billion last year.
Predictably, the business and financial services industry saw a 26% drop in VC investment, to $740 million in the third quarter, versus $1 billion in the comparable period last year. Finally, the consumer goods industry posted its best quarter on record with investment of $223 million, up from $67 million a year ago, on the strength of larger cleantech-related deals in the vehicles and parts sector.
The report also shows VCs shifting their focus to their more established portfolio companies. S
econd- and later-stage rounds dominated investment with $5.89
billion, or 82% of the quarter's investment total. Specifically, second rounds saw
the largest gain, with 150 deals and investment of $1.88 billion, the highest investment total
for these kinds of deals in two years. Conversely, investments in seed and
first rounds dipped to $1.3 billion, a two-year low.
-- David Shabelman
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