US venture capital investment “severely” down

PwC, VentureOne say venture capital investment activity has dropped to its lowest level in two years.

Hardly a week goes by without an other report landing on editors’ desks confirming that venture capitalists worldwide are a lot more careful with their money than they have been until recently.

According to the PricewaterhouseCoopers MoneyTree Survey, published in partnership with VentureOne, venture-backed companies raised less money in the first quarter of 2001 than they have since the second quarter of 1999.

$10.1 billion of financing equity were invested in these companies, 40 per cent less than the previous quarter’s $16.8bn. The number of financing rounds dropped 34 per cent to 692. The survey describes the drop as “the greatest quarter-to-quarter decrease in history in absolute dollar terms.”

Equity financings surveyed include cash investments by professional venture capital firms, corporations, private placement and individuals into companies that have received at least one round of professional venture capital.

Tracy T. Lefteroff, global managing partner of the Venture Capital Practice of PricewaterhouseCoopers said the decrease in activity was significant. “The decline is not unexpected in light of the pessimistic public markets, though the magnitude of the drop is severe. Venture capital typically lags the public markets so a return to last year’s level of investment is unrealistic. And, venture capital firms are focusing more on assisting their existing portfolio companies, leaving less time for new deals.”

VentureOne's Dave Witherow said it was important to put the first quarter into perspective. “There was a tremendous influx of capital between Q1 1999 and Q1 2000, and this has been followed by four quarters of decline – but the current level of investment in venture-backed companies is still about twice the amount being invested two years ago, before the Internet funding craze took off.”

Despite the downturn, fundraising continues to fuel optimism. “The fact that VC fundraising exceeds the current investment momentum suggests that investors are conserving cash but still have available capital to invest”, Witherow commented.