Venture capital plummets 71 percent

Hey buddy, can you spare a dime?

Venture capitalists put a virtual lock on their funding during the fourth quarter, doling out a mere $3.4 billion, according to a report released Monday by Thomson Reuters and the National Venture Capital Association.

The meager performance pales in comparison to the $11.7 billion distributed to start-ups a year ago during the same period. That's a decline of 71 percent. Funding is down nearly 60 percent from the previous quarter.

During the fourth quarter, venture capitalists launched 33 follow-on funds and 10 new funds, resulting in a 3-to-1 ratio for follow-on to new funds. That compares with a 2-to-1 ratio during the same period a year ago.

Mark Heesen, NVCA president, said in a statement:

The drop in venture capital fundraising activity in the fourth quarter is not surprising for two reasons.

First, the market uncertainty has compelled firms that were planning to raise a fund in late 2008 or early 2009 to hold back on fundraising efforts until economic conditions improve and institutional investors can recommit with confidence. The second and less obvious reason is that many venture capital firms raised money in the last two years and are focused on deploying those funds With some notable exceptions, we can expect this slower pace to continue well into 2009.

Such doom and gloom also engulfs venture capital spending as it relates to the tech industry, which posted its worst fourth-quarter performance in a decade, according to a recent report by VentureSource.

Venture capital for IT companies fell 40 percent to $2.18 billion in the fourth quarter, compared with the same period a year ago, according to VentureSource.

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The big reason missed here is tax uncertainty.