From: Reuters
Published April 19, 2008 10:11 PM

Venture capitalists invest less in first quarter

SAN FRANCISCO (Reuters) - Investments in start-ups fell 5 percent to $7.1 billion during the first three months of 2008 compared to the year-ago quarter, signaling that venture capitalists may be less willing to open their wallets during a U.S. economic downturn.

Venture capitalists invested $7.5 billion in last year's first quarter, according to data released on Saturday by the National Venture Capital Association, PriceWaterhouseCoopers and Thomson Reuters.

Despite the decline, the 2008 first quarter saw the fifth-highest level of investment for the period since 2001.

Venture capitalists invested in 922 deals in the latest quarter, compared to 861 deals in the year-ago period.

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"We do not expect to see significant declines in investment levels in the coming year," said NVCA President Mark Heesen.

But he added that more venture capital dollars could go into late-stage companies if the market for initial public offerings remains weak.

Venture capitalists usually invest in companies at an early stage of development and profit by taking them public or selling them to a bigger company.

But with the ongoing stock market uncertainty, IPOs of VC-backed companies fell dramatically in the first quarter, with only five such companies going public compared to 18 in the year-ago quarter.

If the public markets remain daunting, venture capitalists may have to put more money to sustain mature companies that they cannot take public.

But industry experts remained confident that venture dollars would continue to go into a variety of investments.

"VCs have weathered numerous economic cycles and will continue to fund companies with innovative ideas and solid business models," said Tracy Lefteroff, global managing partner at PriceWaterhouseCoopers' venture capital practice.

The life sciences industry, which includes biotechnology and medical devices startups, got the most money during the quarter, with $2.3 billion into 220 deals.

Internet-specific companies, defined by the report's authors as companies whose business models depend on the Internet, got $1.3 billion during the quarter, up from $1.29 billion in the year-ago period.

For six of the last seven quarters, venture capitalists have put at least $1 billion in Internet startups.

The "cleantech" sector, representing alternative energy, pollution, recycling and other green technologies, saw a 51 percent jump in investments to $625 million from the year-ago quarter.

But cleantech investments fell 6 percent from the fourth quarter of 2007.

(Reporting by Anupreeta Das, editing by Philip Barbara)

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