April 18 2008
Is The Venture Capital Party Over?
Duncan Riley
18 comments »
According to a new report from Thomson Reuters and PricewaterhouseCoopers, venture capital investment in the United States headed south in the first quarter of 2008.
The report found that venture outlays dropped 8.5 percent to $7.1 billion in the three months ending March 31 from the $7.8 billion invested in the previous quarter, resulting in the lowest quarter since Q4 2006. Funding for early and late stage companies declined in the first quarter, though funding rose for expansion-stage companies.
The Boston Globe noted that the VC slow-down was in line with the declining US economy, and quotes Nina Saberi, managing general partner for Castile Ventures saying that new startups are being hit the hardest:
“We see from early-stage investments that the economic slowdown has had an impact”….She cited an inhospitable climate for initial public offerings and a tougher market for acquisitions, two routes for cashing out of investment.
The first quarter of the calendar year is usually the quietest so part of the decline may be seasonal, and yet it would appear that the venture capital market, and in turn new stage web investments will not be immune from the increasingly dire American economy. It’s not all doom and gloom: internet investments overall were up this quarter, but the exuberance in the market over the last 12-24 months would appear to have peaked. The only questions now: how far will it drop, at what rate, and how much of the broader downturn in investment will affect internet venture capital.
(via Venture Beat)
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April 18th, 2008 at 10:13 pm
Sure seed stage ventures are going to be hit pretty hard. But I bet startup funds or first-time venture funds will be hit even harder. Few institutional guys will stick their necks out to back new VCs.
April 18th, 2008 at 10:20 pm
How far will it go is the million dollar question isn’t it? Maybe the side effect of this will be investment in only good solid businesses that provide long term growth and wealth.
April 18th, 2008 at 10:32 pm
This is WHY people hate MEDIA.
The gloom and doom “message” being tossed out by people with a platform….. It’s sad that even the new media properties are starting to fall into the same trap as the old media. Selling cheap headlines ala ValleyWag….
If the shit is hitting the fan, then I’d like for Techcrunch to write a long post of the restructuring charges and changes they are taking for this nuclear winter.
Sure, there are issues in the economy. But, jesus what has changed in the past six months?
April 18th, 2008 at 10:36 pm
Alex
unless you’re living in a cave I really don’t need to explain the subprime mortgage crisis and the growing consensus that the US might be heading into a recession in the post. That’s what’s changed in the last 6 months.
I’d also note it’s not all doom and gloom, see the last paragraph. Money is still there, just not as much of it and VC’s are already getting more conservative in their investments, see the post about b5media being knocked back repeatedly on a $20m valuation as but one example.
April 18th, 2008 at 10:55 pm
In Russia, it’s the best-ever quarter for VC investments in tech, is youi read my blog.
April 18th, 2008 at 10:56 pm
The reason for this is that America is really dying, Israel is the future tech powerhouse of the future.
April 18th, 2008 at 11:01 pm
The economy certainly isn’t going gangbusters but we should watch the ‘R’ word.
Stagnant to very small growth is bad, but it isn’t two consecutive quarters of negative economic growth.
April 18th, 2008 at 11:05 pm
If I am not mistaken, web startups’ percentage share of the VC has been shrinking, perhaps because they don’t need as much financing as they once did. Web startups are increasingly cheaper to finance. But with a worsened climate for IPOs and a more generally conservative investment climate, you wonder if the web startups with true potential that need significant financing will be able to raise enough revenue and VC. I reckon that in the natural selection of web startups, there will be less mutation (variety) – the interesting startups are usually risky and take a long time to develop. Variety is important.
Ad revenue on the web is not going to grow as quickly. Is that a direct result of a decrease in consumer sentiment and a decrease in spending on the web?
I still think that in certain untapped “corners” of the web, there will be healthy growth.
April 18th, 2008 at 11:16 pm
The only question now: how far will it drop, at what rate, and how much of the broader downturn in investments affect internet venture capital.
thats 3 questions really – all good ones but different.
So much has been said about how much cheaper it is to startup today then just a few years ago, if the VC money dries up, it may force more entreps to dig in deep and bootstrap it, and maybe when things get rosier again for the money guys the shift will have been completed and new smaller/smarter investment models will overtake them.
April 18th, 2008 at 11:18 pm
@ 6 – America is really dying? come now, thats a bit of a stretch. other spots may be emerging but America is not dying.
April 18th, 2008 at 11:52 pm
When the boiler is getting too hot the lid pops off. We’ve seen it so many times before and we’ll see it again.
April 18th, 2008 at 11:57 pm
Yes it is.
April 18th, 2008 at 11:57 pm
The pace of early stage internet deals has slowed considerably.
April 19th, 2008 at 12:01 am
The perspective could be very different on why the numbers are low. It definitely shows that VC are being conservative. But why? The economy could be the obvious answer. But could it also be the quality of tech companies?
In the last 6 months, we have seen the struggle companies, who rely on advertising, go through to actually create returns for VC’s investment. Think Facebook and think pretty much at least 50% of the social networking sites. It could be that VC’s now know that startups who base their whole revenue model on advertising will not make it. And there could be a possibility that in the last 6 months, VC’s may have rejected a lot of these startups thus reducing the number of investments and the amount.
This is just me thinking out loud at 11:55pm. So I could be really off.
April 19th, 2008 at 12:06 am
we go through these recessions every so often, sure America might be in a slump right now since we have morons in charge of the country, blame Bush for choosing his drinking buddies for all the top jobs. But eventually it’ll recover.
The problem I see is that because of this current slump America is going to lose the 10-20 years that it was SUPPOSED to dominate. After which it’ll be even harder to be competitive because of China.
April 19th, 2008 at 1:19 am
At the same time, rumours abound that Michael Moritz is looking to raise capital to start a tech focused long/short hedge fund…
@Kevin – you have no idea what you’re talking about, go away.
April 19th, 2008 at 1:30 am
I would say that the post title is a bit misleading.
Q2 2007 has also a small decline, but the fact is that a slow economy
affects everything. Maybe it’s the lack of original ideas too.
April 19th, 2008 at 1:56 am
I have to say maybe its a good thing, there seems to be a trend where features not products are getting funding when they shouldn’t.