Given the economic climate, it's no surprise that venture capital investing is down. Last year, PricewaterhouseCoopers and the National Venture Capital Association reported that VC dollars plunged 33 percent and new deals dropped by 22 percent in Q4 2008 over Q3. But just how bad is the investment market these days? The new figures are tough to stomach: Q1 2009 VC investments were down by a hefty 47 percent in dollars and 37 percent in deals from activity recorded in Q4 2008. In dollars and deals: The $5.7 billion that was invested in 866 deals in Q4 2008 dropped to $3 billion spread among 549 deals in Q1 2009. The decline in VC was felt across almost all industries. According to the analysts, this marks the lowest venture investment level since 1997.
Although biotech and medical device companies continued to hold onto 33 percent of all investment dollars and 24 percent of all deals in the first quarter, the life sciences industry faced a 40 percent plunge in VC dollars and a 31 percent drop in deals over Q4 2008--with $989 million spread among 133 rounds. Medical device companies fared better than biotechs with only a 27 percent decline to $412 million versus the biotech industry's 46 percent drop to $577 million. The biotech sector lost 31 percent of investments in Q4 2008 over Q3.
"It's no surprise that venture capital investing dropped in the first quarter," said Tracy Lefteroff, global managing partner PwC. "Given the economic turmoil that began in the third quarter of 2008 and continued on into 2009, it's not unexpected that the VCs would pause to assess the impact on their portfolio companies before again looking forward to their next investment."
But things may be turning around soon. According to NVCA President Mark Heesen, investment levels aren't expected to decline further, and we may even see increases this year. "That said, those venture firms that have the ability to invest at this time are doing so as there remain entrepreneurs with game changing technologies waiting to be funded," he explained in a statement. "While this drop in investment is significant, we are not forecasting levels to continue to fall further. We would expect a mild and steady increase in investment throughout the rest of the year, particularly if the exit pipeline is allowed to clear."
- read the release for more
- check out our report on the Top 20 venture capital deals of 2008