VC investors show signs of constraint

Companies seeking venture capital dollars have had a bit less luck in the past year, according to research released Saturday by Dow Jones VentureSource and Ernst & Young.

Overall United States-based VC spending in the first quarter of 2008, totaling $6.8 billion in 603 deals, is down 7 percent year over year and 9 percent since last quarter, according to the research, indicating that venture firms are keeping a tighter grip on their wallets in a time of market volatility and uncertainty.

Hit hardest are companies in the health care sector, which reached its lowest funding quarter in two years, at $1.74 billion. The customary six weeks of diligence for venture deals in the sector has ballooned to two to three months at some firms, Brian Atwood, managing director of Versant Ventures, told The Wall Street Journal.

VC investment in biopharmaceuticals endured a 59.2 percent drop since last year, while investment in health care services dropped 52.8 percent. Companies focusing on communications and networking technology also attracted 60 percent less venture capital than they did a year ago.

But while funding in those markets has dropped dramatically, venture investment in most others remains quite healthy.

IT providers--including companies focusing on communications, electronics, information services, semiconductors, and software--garnered a total of $3.88 billion in the quarter, marking a 20 percent gain year over year, led by information services. The "business/consumer/retail" category garnered 29 percent more venture dollars, led by a very strong media sector, which enjoyed a tenfold increase, growing from $21 million to $236 million during the same period.

Investment in the catchall "other" category, which includes the ever-popular clean-technology sector, remains steady, up 0.5 percent year over year.