Sunday, April 19, 2009

Venture Capital Investments Plunge 61% Amid Frozen IPO Market

U.S. venture capital investments fell 61 percent to $3 billion in the first quarter, the lowest level in 12 years, as the financial crisis chased away funding for technology and clean-energy deals.

Funding of clean technology -- coming off a surge of investments in 2007 and 2008 -- plunged 87 percent, the National Venture Capital Association said today. Total venture investments dropped 47 percent from the previous three months.

The freeze in initial public offerings kept startups from getting funding because investors weren’t sure how they would earn a return, said John Taylor, vice president of research at the Arlington, Virginia-based association. Venture capitalists are devoting more attention to companies they already own.

“We are in a very difficult, stressed time,” Taylor said on a conference call. “Everyone is trying to figure out what is going on.”

Venture capitalists are now wary of the large financial commitments needed to commercialize technologies such as solar power and ethanol, said Noubar Afeyan, chief executive officer of Flagship Ventures in Cambridge, Massachusetts. The investments don’t seem to provide a quick payoff, he said.

“A lot of that money came in expecting a short-term exit, which didn’t happen,” Afeyan said.

The IPO market showed signs of thawing this week, with two companies going public. Bridgepoint Education Inc., a provider of college courses, began trading April 15. Shares of language- software maker Rosetta Stone Inc. debuted on April 16.

Still, the deals probably won’t open the floodgates, said Stephen Harrick, general partner at Institutional Venture Partners, a backer of the Twitter Inc. microblogging site.

“We have companies we think are ready or could be ready, but there hasn’t been any interest from the capital markets,” Harrick said.

The average size of a venture-capital investment fell to $5.5 million from $7.8 million a year ago, the NVCA said. Most of the investments are going to later-stage companies.