LONDON Venture capitalists invested $17.7 billion in 2,795 deals in 2009, marking the lowest level of dollar investment since 1997, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters.
Venture investments in 2009 represented a 37 percent decrease in dollars and a 30 percent decrease in deal volume from 2008. It was the second consecutive year of annual deal and dollar declines, according to NVCA.
Double digit declines in investments were spread across almost every industry including clean technology, life sciences and software. Investment dollars also fell across every stage of development category, with the exception of a 2 percent increase in seed-stage investments. However, fourth quarter investing did show increases in the number of first-time and Early Stage deals completed, potentially marking the beginning of an uptick in investment levels for 2010.
"The venture capital industry had no choice but to slow the investment pace in 2009," said Mark Heesen, president of the NVCA. "The weak exit environment resulting from an unstable public market combined with a challenged limited partner base sent a strong message to the venture community to pull back the reins and the VCs listened. Now that the economy has begun to show signs of improvement, we expect to see dollars flow more freely back into those sectors that offered the most promise before the recession began clean technology, life sciences and IT. The Seed and Early Stage pipeline needs replenishing across all industries and the health of the startup community in the next decade will be dependent upon more robust first-time financings. Twenty-ten should be the year to begin that process in earnest."
"Despite the overall drop in funding in 2009, VCs placed more bets in the fourth quarter of 2009 than we've seen all year," noted Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers LLP. "They're investing fewer dollars in these companies but the fact remains that there are still entrepreneurs out there with great ideas who are getting the opportunity to take the next step forward with their businesses. This can be clearly seen by the increase in the number of Seed Stage companies receiving funding in 2009, compared to those in the Expansion and Later Stages of development, which dropped by close to half. VCs continue to place their bets in areas of promising growth especially in the Life Sciences sector, which accounted for one-fourth of all deals in the fourth quarter of 2009."
The Clean Technology sector experienced a significant decline in 2009 with $1.9 billion invested in 185 deals. This investment level represents a 52 percent decrease in dollars and a 31 percent decline in deal volume from 2008 when $4.0 billion was invested in 268 deals. Clean Technology investing accounted for 11 percent of all venture capital dollars in 2009 compared to 14 percent in 2008.
With the lone exception of Networking and Equipment, which experienced a 5 percent decline in dollars in 2009, every industry category had double digit declines for the year. Industry sectors experiencing the biggest dollar declines in 2009 included: Telecommunications (-67 percent); Semiconductors (-53 percent); and Industrial/Energy (-50 percent).
Early stage investments fell by 13 percent in terms of dollars and 17 percent in terms of deals in 2009 to $4.6 billion into 883 deals. Expansion stage investments decreased in 2009 by 47 percent in dollars and 35 percent in deals with $5.5 billion going into 801 deals. In 2009, $5.9 billion was invested into 799 Later Stage deals, a decline of 44 percent and 33 percent, respectively, for the year. First-time financings fell to the lowest annual levels since the MoneyTree began reporting in 1995. Just $3.4 billion went into 725 deals in 2009, a 45 percent decline in dollars and a 40 percent decline in deals.
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