PRINT THIS PAGE

US venture capital investment slows slightly in third quarter in same period last year

US venture capital investment activity slowed slightly in the third quarter when compared with the same period last year. The slowdown was more pronounced in later stage deals and there was a small increase in the amount and number of seed and early stage investments.

The third quarter saw a total of $4.56bn invested in 467 deals, according to the quarterly Venture Capital Report produced by Ernst & Young and VentureOne. That represented a fall of four per cent in the number and value of deals on the same period a year earlier.

John Gabbert, vice president of worldwide research at VentureOne, suggested the slowdown might be attributable to the shrinkage in the population of venture-backed firms over the last few years, meaning there are now fewer companies requiring later stage venture investment.

It may also have resulted from a greater emphasis on capital efficiency from VCs of their investee companies, meaning they are simply making fewer stage investments, he suggested. 'Later round financings may have slowed because investors are expecting their more mature portfolio companies to use capital more efficiently as they move to an exit opportunity.'

In contrast to later stages, seed and first-round deals increased their share of total deals to 32 per cent from 28 per cent in the same period last year. They received $965.8m of financing in the third quarter, a 32 per cent increase on the same period of 2003.

'The return of interest in early stage investments bodes well for the future of the market. Both information technology and healthcare companies saw the highest total amounts invested in seed-round deals in more than two years,' Gabbert said.

The figures imply the recovery in venture investment is still ongoing but that venture capitalists remain cautious about the pace of their investing. The scale of fundraising over the past 12 months would indicate the recovery will remain firmly on track but that VCs, for the moment, are still acutely aware of the need for discipline.

Copyright © 2004 AltAssets