US VC investments down Q1 2001

By
Brad Meikle
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US venture investment figures plummeted to a two-year low, according to the results of the PricewaterhouseCoopers Money Tree Survey in partnership with Venture One. All technology sectors suffered with total investment falling to $10.1 billion.

According to the Pricewaterhouse Coopers Money Tree Survey in partnership with Venture One, venture-backed companies raised less money in the first quarter of 2001 than in the second quarter of 1999. Equity invested fell 40 per cent to $10.1 billion, compared to $16.8 billion the previous quarter.

The number of financing rounds also dropped 34 per cent to 692.

Venture capital investment, excluding private investors, investment banks and corporate leasing firms, dropped 39 per cent to $8.8 billion in 609 deals. In terms of stage of investment, seed and first round financing was hit hardest, with both deal flow and the amount raised at approximately half the level of the fourth quarter. These rounds now account for 39 per cent of venture capital financing compared to 49 per cent in the previous quarter. Of the funds invested, just 24 per cent were allocated to seed and first rounds compared to 30 per cent last quarter.

Almost all industries experienced a decline, with sectors such as consumer and business services, electronics and computer hardware and semiconductors falling 50 per cent or more. The communications and biopharmaceuticals segments, despite maintaining fairly steady levels of investment throughout the past year, also suffered this quarter witnessing

a drop of 38 per cent and 37 per cent respectively in equity investment. Communications companies were adversely affected by the dearth of corporate investment, which fell to just 34 rounds of financing, totaling $143.2 million.

In the first quarter, Internet investments accounted for 75 per cent of all financing, down from a peak of 85 per cent in Q4 1999. Investments in Internet-related companies fell to $7.6 billion in the first quarter compared to $13.4 billion, the previous quarter, a 43 per cent decline. The Internet infrastructure segment, which had remained strong throughout 2000, experienced a 52 per cent drop to $2.1 billion, while the ISP sector increased to $1.1 billion due to relatively large investments in a small number of companies. All other Internet-related segments declined.