Administration March 5, 2002

Venture Funding Evaporating

May 3, 2002 (PLANSPONSOR.com) - 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.
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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.

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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.

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