San Francisco: Venture investments have fallen for three straight quarters, the longest-running contraction since the stock market crash of 1987, according to a study released on Monday. According to VentureWire, which tracks trends in private equity investments, the amount raised by venture funds dropped 48 per cent in the first quarter compared with a year earlier to $14.5 billion. The number of early-stage deals - the riskiest type of financing because of the likelihood start-ups will fail - was also cut in half to just 327 in the quarter.The first quarter was also an ugly period for listed technology stocks, with the Nasdaq dropping almost 26 per cent for its fourth-consecutive quarterly decline. Some analysts say the correction in venture funding is a similar correction toward more sustainable levels after a feverish bubble in which too much money was chasing too many deals.
If the first-quarter pace of new investment is sustained,venture capitalists will invest about $47 billion in 2001, down from $108 billion last year, VentureWire said. "Venture capitalists are not thinking about new investments," VentureWire managing editor Ken Andersen said in a statement. "They are spending their time - and money - on saving the companies in their portfolios." While down from the torrid pace of investment last year when cash flowed into Internet- and other technology start-ups, the venture industry still looks fundamentally sound, VentureWire said. "We're still running way ahead of the last sane year on record," said Brian O'Conell, VentureWire's publisher. "What these numbers represent is a chastened but still healthy venture capital industry." In the past half-year, many venture capitalists have hailed a return to fundamentals, demanding start-ups have revenue streams, watch expenses and meet milestones - a tougher set of criteria than many DOT-coms could meet.
The result has been smaller deals this year, analysts say. Financing rounds for start-ups that were routinely in the $10 million to $15 million range last year now are in the $5 million to $7 million range - and the quality is better, venture capitalist Don Wood of Palo Alto, California-based Vanguard Venture Partners told Reuters. "The deal frenzy is over," Wood said.
"There's now time to do good due diligence." The venture capital industry continues to have enormous cash commitments in reserve and many venture firms continue to raise hundreds of millions of new money. Some firms even are raising funds with $1 billion in commitments. On Monday, for instance, San Francisco-based Walden International joined the growing ranks of venture firms with $1 billion funds when it closed its Pacven V LP fund, which will invest in Asian and US Communications, software, hardware and life sciences companies.
-- Reuters
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
