Administration March 5, 2001

VC Investment Falls To Two-Year Low

May 2, 2001 (PLANSPONSOR.com) - Equity investments in venture-backed companies fell to a two-year low in the first quarter, as enthusiasm fell along with the markets.
Reported by

While the level of investment has been declining for the past several quarters, the drop was the largest quarter-to-quarter fall in absolute dollar terms, according to the PricewaterhouseCoopers MoneyTree Survey in partnership with VentureOne.

The $10.1 billion of financing equity invested in these companies during the quarter was 40% less than the previous quarter’s $16.8 billion, as the number of financing rounds dropped 34% to 692. 

Those financings include investments by professional venture capital firms, corporations, private placement and individuals.

Why Not?
 
Venture capitalists attributed the slowdown to:

  • the realization that quick investment cash-outs are not going to happen in the current soft stock market
  • venture capitalists are having to focus on tending their existing portfolios, rather than looking for new opportunities.

Seed and first round financings were hit hardest, with both deal flow and amount raised registering at roughly half the level of the prior quarter.

Virtually all industries experienced a decline, with the following plunging 50% or more:

  • Consumer & Business Services
  • Electronics & Computer Hardware
  • Semiconductors

Even the Communications and Biopharmaceuticals segments suffered losses of 38% and 37%, respectively.

In the first quarter, Internet investments comprised 75% of all financings, down from a peak of 85% in the prior quarter.  Dollar investments in Internet-related companies fell 43% in the quarter to $7.6 billion from $13.4 billion.

– Nevin Adams         editors@plansponsor.com

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