Venture capitalists invested just USD3.90bn in US companies in the first quarter of 2009, a 50 per cent decline from the same period in 2008 and the lowest quarterly investment total si
Venture capitalists invested just USD3.90bn in US companies in the first quarter of 2009, a 50 per cent decline from the same period in 2008 and the lowest quarterly investment total since 1998, according to data from Dow Jones VentureSource.
Only 477 venture deals were completed in the quarter, well below the 706 deals done in the first quarter last year and the industry’s lowest quarterly deal total since 1996.
‘We’re seeing continued retrenching in the venture capital industry,’ says Jessica Canning, director of global research for Dow Jones VentureSource. ‘Over the past several quarters, VCs have pulled back significantly on early stage investments in the US, across all industries. During the economic downturn, investors will continue to focus on nurturing their strongest, existing portfolio companies, and keep their eyes open for the next set of opportunities.’
According to VentureSource, the IT industry saw its lowest level of investment since 1997 with USD1.68bn invested in 231 deals in the first quarter of 2009. This marks a 52 per cent drop-off from the USD3.48bn that was invested in 370 such deals during the same period last year. The deal count is the lowest for the IT industry since 1995.
The software sector saw USD728m invested in 117 deals during the quarter, a 50 per cent decline from the same period last year when nearly USD1.46bn was invested in 163 deals. This marks the lowest quarterly investment in software since 1997 and the sector’s smallest deal count since 1995.
‘Technology companies have long been the primary focus of venture capitalists,’ says Canning. ‘But with a non-existent IPO market and corporations paying less for venture-backed technologies, the incentive for investors to back new or unproven business models is just not there.’
The information services sector, which includes most of today’s Web 2.0 technologies, saw investment and deal flow fall back to the levels seen in 2005. Information services companies attracted USD323m in 55 deals during the first quarter, down more than 61 per cent from the record USD828m invested in 116 such deals a year ago.
The healthcare industry saw investment and deal flow fall to their lowest levels since 2003. According to VentureSource data, USD1.35bn was invested in 118 healthcare deals in the first quarter of the year, a nearly 34 per cent drop from the USD2.04bn in 162 deals during the same period in 2008.
By sector, biopharmaceutical investment slipped 21 per cent from USD918m in 69 deals in the first quarter of 2008 to USD723m put into 56 deals in the most recent quarter. Medical device companies saw investment fall 51 per cent from the USD972m put into 74 deals last year to USD477m invested in just 42 deals in the most recent quarter.
The energy and utilities industry garnered USD189m in 15 deals during the first quarter, down 59 per cent from the USD457m it saw invested in 24 deals last year.
The renewable energy sector, which makes up the backbone of the industry-spanning ‘cleantech’ category, accounted for the bulk of the industry’s investment in the first quarter with USD117m put into nine deals. This represents a 73 per cent decline from the USD427m invested in 16 renewable energy deals in the first quarter of 2008.
Elsewhere, the business and financial services industry attracted USD467m in 69 venture deals during the first quarter, down 50 per cent from the USD927m invested in 94 deals over the same period last year. The consumer services industry saw USD144m put into 26 deals in the first quarter, down 70 per cent. The smaller consumer goods and industrial goods and materials industries both saw investment tallies fall below the USD50m mark to USD30m and USD28m, respectively.
‘Not only did venture capitalists back fewer companies in the first quarter but invested less money in the deals they did do deals,’ says Canning. ‘Much of this capital went to established, older portfolio companies to help them ride out the economic storm.’
According to VentureSource, the median deal size fell to just under USD2.4m in the quarter, down 73 per cent from the USD9m median seen a year ago and the smallest quarterly deal size since 2002.
Later-stage financing rounds accounted for 55 per cent of all venture investment in the first quarter of 2009, up from 47 per cent in the same quarter last year. By comparison, the proportion of seed and first-round investment was just 18 per cent in the first quarter, down from 25 per cent in the same quarter last year. The proportion of second-round investments held steady year-over-year at 23 per cent. Recapitalizations accounted for four per cent of investments in the first quarter of 2009 and five per cent in 2008.
