U.S. Venture Investment Falls to Lowest Level in a Decade

Last year venture investment decreased to its lowest level since 1997, according to the latest Moneytree Report from PricewaterhouseCoopers and the National Venture Capital Association (NVCA).  A weak environment for exits and increasing caution on the part of investors contributed to a 37 percent decrease in investment dollars and a 30 percent decline in venture deals from 2008 levels. This marks the second consecutive year of declining venture dollars and deals. A report from Dow Jones VentureSource, however, notes that investment activity rebounded in the fourth quarter, and both outlets predict growth in 2010.

Venture firms invested a total of $17.7 billion in 2,795 deals last year, down from the post-tech boom peak of $30.5 billion in 4,027 deals in 2007. Activity increased during the fourth quarter, exceeding the amount of dollars and deals during the same quarter in 2008, but not enough to salvage the overall low numbers for the year.

Though investment in biotechnology declined in 2009, the sector managed to surpass software as the leading target for venture dollars for the first time. Venture capitalists invested $3.5 billion in 406 deals in biotech. Meanwhile, software companies received $3.1 billion in 619 deals. Clean technology investment, which had grown significantly in recent years, declined in 2009. Total venture dollars in cleantech fell by 52 percent and deals fell by 31 percent last year. Energy and utility investment overall was similarly down.

Analysts are divided on what the latest news means for seed- and early-stage investors. The Moneytree report celebrates the increase in the number of seed-stage companies receiving investments in relation to the percentage of deals going to expansion- and later-stage companies. The Dow Jones report, on the other hand, warns of a "startling retreat" for early-stage companies in 2009. Despite a growing preference for smaller deals, portfolios shifted in the direction of older companies, particularly those who have previously received venture funding.

Both reports, however, find that the fourth quarter increase in seed- and early-stage deals is an encouraging sign for startups and entrepreneurs. The end-of-the-year bump in first-round and early-stage deals may indicate that investors are again ready to take risks on newer firms.

Read the PricewaterhouseCoopers and NVCA Moneytree release at: https://www.pwcmoneytree.com/MTPublic/ns/moneytree/filesource/exhibits/09Q4MTRelease_FINAL.pdf.

Read the Dow Jones Venture source release at: http://www.prnewswire.com/news-releases/us-venture-capital-investment-finishes-year-strong-with-flurry-of-deals-in-4q-the-year-sees-investment-down-31-from-2008-82368447.html.