Venture Funding Evaporating

May 3, 2002 ( - Seed money for startups continued to dry up in the first quarter of 2002, continuing a trend that began two years ago, a study finds.

Total private investment in startups over the first three month of the year, were 24% lower than the previous quarter, the study by the National Venture Capital Association, PricewaterhouseCoopers and Venture Economics finds.

For the first three months of 2002, venture investment shriveled to $6.2 billion, with only 787 firms receiving financing from venture capitalists, compared with 994 in the previous quarter.

Though the numbers are far removed from the levels seen at the height of the tech boom when investment in early stage companies reached $27.9 million, they are on par with 1998 funding levels.

Technology companies continued to take the largest portion of the venture funding pie over the quarter, with

  • the software sector accounting for $1.1 billion of the funding
  • networking getting $899 million.

However, information technology services saw the largest decline as funding dropped by 45% to $235 million.

Over the quarter, in other sectors:

  • funding increased by 22% in media and entertainment firms
  • funding for business products and services was up by 18%
  • industrial and energy companies saw a massive 37% increase in seed money
  • funding for medical devices and semiconductors remained level.

While venture capitalists steered 76% of investments to companies that had received earlier capital injections, the percentage of venture capital received by early-stage companies actually rose over the period, with true startups accounting for 19% of all investment in the quarter, up from 16% the previous quarter.