US VC investments continue to fall

US early stage investments continue to fall. In the third quarter, a total of $6.5 billion was invested in 601 financing rounds, down 23 per cent by value and 16 per cent by volume, according to the PricewaterhouseCoopers Moneytree Survey in partnership with VentureOne.

However, unlike other financial sectors, venture capital activity was not immediately affected by the events of September 11. Dave Witherow, president of VentureOne, said: “While venture investment overall is on a trend of gradual decline, venture-backed companies continue to complete financing rounds that lay the groundwork for future economic development.”

Investments for the first three quarters totaled $25.4 billion and it is expected that full year figures for 2001 will reach $30 billion, making it the third largest year in US venture capital history.

Over 80 per cent of the $1.9 billion decrease this quarter stemmed from the cutbacks in the consumer/business services, software, and information services segments. Software investment decreased 40 per cent to $1.1 billion.

Investments in the biopharmaceutical and semiconductor segments maintained a consistent level throughout the year, ending the quarter with $581 million in 51 deals. Semiconductor companies this quarter raised $432 million in 44 rounds of financing. In the Internet-related arena, only the infrastructure segment showed significant strength. The $1.4 billion raised by infrastructure companies in the third quarter was almost identical to the amount raised in the previous quarter.

The decrease is not as marked in Europe. European investments, including buyouts, fell 17 per cent in the first half of 2001 compared to the same period in 2000. “Buyouts are holding out pretty well in Europe,” says Keith Arundale, European venture capital leader at PricewaterhouseCoopers. “That is the reason it is only down by 17 per cent overall.”

On the VC side (including seed and early stage), investments in Europe were down 29 per cent for the first half of the year. While in the US investments fell 65 per cent for the same period.

Arundale commented on future trends: “Looking forward, VCs are being selective. There is no shortage of funds and the money is still there for the right proposition. The second half of the year is normally the stronger half, but this year it will not be as strong. Nevertheless, like the States, we are still expecting 2001 to be the third biggest year in the European venture capital industry.”