US Venture Capital Investing Down 8% in First Quarter
In a difficult economic environment, venture capitalists are preaching caution to their portfolio companies, and first-quarter investment levels suggest some restraint with their wallets, according to DowJones VentureWire.
These investors sank $6.8 billion into U.S. companies across 603 deals in the first quarter, according to data released today from Ernst & Young and VentureSource, a division of Dow Jones & Co., publisher of VentureWire. The deal total is the lowest since the first quarter of 2005, while the investment level is down 8% from the $7.4 billion recorded in the year-ago quarter and 9% in the fourth quarter of 2007.
The health-care sector showed particular weakness in the first quarter, dragging down results. Since several health-care firms have recently raised large funds, however, the drop-off is probably temporary, VentureWire says. The fall occurred as firms approached investments more cautiously, largely because of the turbulence on Wall Street.
On the flip side, companies in the area that VentureSource classifies as information services - which includes many companies dealing on the Internet - along with energy companies continued to receive strong interest from investors.
Some of the largest deals in the quarter were the result of a tightening IPO market. Companies such as Web analytics and marketing firm Coremetrics Inc. had expected to make a public offering but instead raised a $60 million eighth round of funding. Other large deals came about because start-ups explicitly decided to raise larger rounds just in case they need to survive through difficult economic times, such as widget company Slide Inc., which raised $50 million.
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