Venture Capital Investment In 3Q Holds At $7.1Bln, Despite Economic Downturn

October 18, 2008 10:22 a.m. EST

New York, NY (AHN) - In the third quarter of 2008, the venture capital investment was down, according to the MoneyTree Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA).

Venture capitalists invested 7 percent less to $7.1 billion in 907 deals in the third quarter of 2008, compared to $7.7 billion was invested in 1033 deals, the report showed.

The report data is, however, better than expected as the investment flow did not sharply fall despite the turmoil in the global financial markets in the United States.

Venture capitalists have faced similar difficult economic times before but did not slow down on long term investments. The slight drop was in the third quarter was within historical norms of 2008.

"While overall venture investing hasn't yet been impacted by the turmoil in the financial markets, as evidenced by the $7 billion plus invested in Q3, we do expect to see a dip in investing over the next several quarters," Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, said in a statement on Saturday.

"We also do not expect venture funding to dry up. Venture capitalists may tighten their belts and those of their portfolio companies but they still have money in their coffers and will continue to make investments."

The Biotech industry topped as the amount of investment in the sector stood at $1.35 billion, compared to $1.34 bilion invested in Software industry in the third quarter.

While, Software sector led based on the number of deals made during the quarter with 214 companies; only 114 Biotech companies received investments.

As many as 207 Biotechnology and Medical device making companies gained investments by a total of 10 percent in the third quarter with $2.2 billion, compared to an 8 percent drop in deals from the second quarter this year.

Funding for clean technology start-ups was up by as much as 14 percent, according to the MoneyTree Report.

"The financial crisis in October was not reflected in the third quarter venture capital investment levels," Mark Heesen, president of the National Venture Capital Association, said in the statement.

"During the next year, venture capital investment levels will be driven significantly by the clean tech sector, which will continue to grow despite economic woes and could become the top investment sector for the venture capital industry by 2012."

During the quarter, the U.S.-based venture capitalists provided funds of $526 million to 51 deals in China, compared to $574 million invested in the second quarter into 52 deals.

Investments in India also declined in the third quarter by 43 percent to 271 million into 28 deals, compared to $473 million invested into 40 deals in the second quarter.