US venture capital continues decline in Q3

US venture capital continued its downward trend inthe third quarter of 2002 with total investments of$4.5bn into entrepreneurial companies,a decrease of 26% from the prior quarter, accordingto the PricewaterhouseCoopers/VentureEconomics/National Venture Capital Associationsurvey. Venture capitalists invested $6bn in Q2 2002 and $6.4bn in Q1 2002. A total of 647 companiesreceived funding compared to 838 in the previousquarter. The slow-down can be attributed tocontinued volatility and poor performance in thepublic markets, as well as the decline in corporatetechnology spending. Venture capitalists havebecome increasingly selective as they are faced withlonger investment cycles, declines in companyvaluations, and limited exit opportunities.According to Mark Heesen, president of the NVCA,’Venture capitalists have concerns regardingthe front-end and back-end of the deals theyare evaluating. On the front-end, they are concernedthat young companies are going to have difficultygaining traction in terms ofcustomers and revenues due to the decline intechnology spending. On the back-end, they areconcerned about sobering valuations and illiquidity.Both sets of concerns are resulting in an increasinglycautious venture community.’ All major industriesexperienced declines, and expansion stagecompanies continue to receive the most venturecapital.

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