VC Falls Back To 1997 Levels

The continuous decline of venture capital investing persisted in the First Quarter 2003 with total investments of $3.8 billion, down from the prior quarter of $4.3 billion, according to the latest PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey. A total of 623 companies received funding in the first quarter compared to 726 companies in the fourth quarter of last year. Industry leaders cited the uncertainty associated with the war in Iraq and the lackluster economy as prime contributors to the cautious investment pace.

Venture capital investing fell sharply starting in 2001 after the correction in the public markets and has steadily drifted downward ever since. In terms of dollars, investment in the first quarter of 2003 was the lowest since the third quarter of 1997. The number of companies receiving funding was the lowest since the third quarter of 1996.

Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, said, “The reality is that venture capital will not lead the economy out of this slump. It will follow it out. Restoration of global stability appears to be underway. But, until the public markets and liquidity opportunities show signs of sustainable improvement, venture capital will not rebound.”

A total of 131 companies received venture capital for the first time in Q1 2003, a drop from 180 in Q4 2002. However, with $680 million, these companies commanded 18 percent of overall investment dollars, about the same as the prior quarter. This consistency was may indicate that venture capitalists remain committed to balancing new investments with those in existing portfolio companies.

Additionally, the mix of industries receiving first-time venture dollars indicated that venture capital firms might be broadening their range of investing.

Detailed information for the first quarter of 2003 is available by region, industry, stage of finance at http://www.pwcmoneytree.com. The site also has a feature allowing users to download historical data as far back as 1995 for the U.S. and selected regions.

SSTI also has prepared a state-by-state table <http://www.ssti.org/Digest/Tables/051603t.htm> to present the MoneyTree™ results for Q1 2003. Data for the number of deals, total amount invested, average deal size and rank are included in the table. Thanks go to Cindy Cieluch of Porter Novelli Austin for supplying SSTI with the data.

Growthink Survey

The downward trend in venture capital investing also was evidenced by new Growthink data, as companies securing investments numbered 36 fewer than the previous quarter. More than $4.3 billion of venture capital was invested in 486 private companies, according to Growthink Private Equity Funding Reports for the First Quarter 2003.

Among major metropolitan areas, the San Francisco Bay Area continued to lead the nation with $1.27 billion in investments, or 29.5 percent of the nation's total, the Growthink data shows. Boston was next with $589.8 million (13.7 percent) and 49 deals, and Washington D.C., with 37 deals, ranked third at $305.75 million (7.1 percent). New York City was fourth, with 26 companies raising $281.8 million, and Seattle followed with 28 deals and $208.2 million.

After falling out of the top 10 in Q4 2002, Chicago climbed back up to sixth in Q1 2003 with $137.35 million in VC investments. San Diego fell two spots to seventh, and Dallas, having entered the top 10 in the last quarter, went from fourth to eighth. The Denver/Boulder and Austin metro areas rounded out the top 10, which accounted for 75.2 percent of the nation's total first quarter activity. Orange County, Minneapolis/St. Paul and Research Triangle (NC) fell from the top 10.

Growthink reports only private, U.S.-based companies that receive equity investments of $300,000 or more. The company does not collect information on venture capital investments in public companies, debt financing or other areas. The fourth quarter survey, including data by geographic region, state, metro area and industrial sector, is available in individual sections or in its entirety at: http://www.growthinkresearch.com