Funding Down But Still Flowing

Venture capital survey: Funding Down But Still Flowing


For the first time ever, clean-tech investments nationwide cracked the $1 billion mark in a single quarter, and biotech investments were also up.

But overall, venture capital investments slipped 7 percent in the third quarter of 2008, with $7.1 billion going into 907 deals compared with $7.7 billion into 1,033 deals in the previous quarter. Investments in Silicon Valley were similarly down, with $2.77 billion going into 297 deals compared with $3.1 billion going into 318 deals in the previous quarter.

Those were the highlights of the latest MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.

Tracy T. Lefteroff, who oversees the venture industry for PricewaterhouseCoopers, predicted "a dip in investing over the next several quarters" as the full effects of the global financial crisis take hold. "We also do not see venture funding drying up, " he added. "Venture capitalists have slugged through difficult times before."

In Silicon Valley, biotechnology firms received most of the larger investments during the third quarter. More than $600 million went into 27 deals, pushing the year's tally to $1.16 billion — just shy of the $1.17 billion invested in valley biotech in all of 2007.

Nationwide, the life sciences industry, combining biotech and medical devices, had a 10 percent increase with $2.2 billion going into 207 deals. Life sciences
Advertisement
represented 31 percent of dollars and 23 percent of deals in the third quarter. Software was also a bustling sector, with $1.34 billion invested in 214 companies.

One closely watched statistic is first-time deals. In the third quarter, $1.5 billion went into 259 first-time deals, a decline of 12 percent in dollars and 20 percent in deals from the previous quarter.

"We will be watching the mix of first-time vs. follow-on rounds closely in the coming months for any notable decline," said National Venture Capital Association President Mark Heesen. If venture-backed companies can't cash out their investors through mergers and acquisitions or public stock offerings, Heesen said, VC firms may channel more money away from early-stage deals.