Venture capital investment continued its two-year decline in the second quarter of 2002. Total investments fell 11.2% sequentially to $5.7 billion, the lowest level since the third quarter of 1998, according to the PricewaterhouseCoopers, Venture Economics, and National Venture Capital Association MoneyTree Survey.
"As expected, total investments for the year 2002 will be well below 1999, the first of the 'bubble' years," said Tracy Lefteroff, global managing partner of the venture capital practice of PricewaterhouseCoopers.
"However, 2002 is still likely to be the fourth largest year ever for venture investing. This return to more normal historical levels also reflects the uncertain economic environment, the weak IPO market, and more realistic company valuations. On the other hand, the fact that the number of companies getting venture backing has scarcely decreased is a positive indicator of future activity. Entrepreneurs are continuing to fill the pipeline."
With few exceptions, most industry categories experienced declines. The Networking industry captured $633.4 million, a decline of 26.3% from $859.1 million in the prior quarter.
The Telecommunications industry accounted for $656.5 million, down 16.3% from $784.4 million in the first quarter.
"[Biotech] bypassed telecommunications, which had been one of the hot sectors the past few years," Lefteroff said. "This quarter, telecommunications was down 16%. We saw drops in both wireless and commercial telecommunications."
Semiconductors declined 30.9% to $283.9 million, compared with $411.1 million in the previous quarter.
Computers and Peripherals experienced a gain of 5.8% to $185.3 million from $175.1 million in the prior quarter.
Electronics and Instrumentation declined 79.3% to $34.9 million in the second quarter. This follows an increase of 87% to $168.2 million in the first quarter from $89.8 million in the fourth quarter.
A total of 819 companies received venture backing compared to 787 companies in the first quarter. The pace of investing was similar to 1998, which was the last pre-bubble year.
Expansion stage companies attracted the most dollars in the second quarter with 468 companies accounting for 66% of total dollars invested. Two hundred thirty three early stage companies attracted 19% of total dollars. Fewer companies received later stage financing with 73 organizations receiving funding versus 132 in the first quarter.