VC Funding falls off a Cliff

February 10th, 2009 | Sources: Wall Street Journal

Subjects:

youpanicyoudieIn Q4, 2008 the Great Economic Crisis matured into a fire-breathing dragon that stomped on everything including start-ups and the venture capitalists that fund them.

In that quarter, VC investment dropped 30% to levels not seen since Q1, 2005, according to VentureSource.

Venture capital firms invested $5.5 billion into US companies during Q4, compared with $7.9 billion the previous year. A total of 554 VC deals went down during the quarter, compared with 718 in Q4, 2007.

“Very few new deals are getting done, and a lot of people are trying to make sure their portfolios are protected,” Faysal Sohail, of San Francisco-based CMEA Ventures told the Wall Street Journal.

runforyourlifeThe dragon blasted venture capital firms 2 ways. First, these firms typically generate revenue when a portfolio company is acquired, merged or goes public, but just about none of that is happening these days.

Second, the firms need to raise cash from institutional investors for investment purposes, but those guys have fled for the hills.

The downturn affected Tech start-ups in particular. They posted their worst investment quarter since 1998. A total of $2.2 billion was invested in 266 Tech deals in Q4, down nearly 40% from that invested in Q4, 2007, according to VentureSource.

Health care start-ups also got nailed, dropping to levels not seen since 2005. For the quarter, 137 deals netted roughly $1.5 billion worth of investment in health care.

For the year 2008 as a whole, venture capitalists invested $28.8 billion in 2,550 deals, down from $31.4 billion invested in 2,823 deals in 2007, according to VentureSource.


 

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