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.
HALF MOON BAY, Calif.--When bonds are paying yields like stocks and blue-chip companies are severely undervalued, who wants to invest in equities, let alone an IPO?
Those are just some of the challenges companies face in attracting investors in this current economic climate, noted panelists Tuesday during the AlwaysOn Venture Summit West conference here. Despite the dire economic climate and the market meltdown, the panelists noted "good companies" will still have an opportunity to go public--it just may take longer. Investors, such as mutual funds, asset managers, pension funds and hedge funds, are holding a significant amount of cash on the sidelines, as a defensive move to guard against clients pulling money out of the funds they are invested in and as a means to keep their powder dry, noted Leslie Pfrang, a managing director and head of specialist sales at Deutsche Bank. And investors apparently don't mind that their funds are holding onto such a large hoard of cash instead of investing in equities, given cash is now considered an asset class, noted John Rende, a partner with Weintraub Capital Management. Rende and Pfrang were both speakers on "The Buy Side Today" panel. With the harsh economic climate washing out a number of companies that had hoped to launch an initial public offering, the survivors will likely lead to a bumper crop of stronger and more profitable IPOs, said Lise Buyer, founder of IPO advisory firm Class V Group, who also served as a speaker on the "Are the IPO Glory Days Over Forever" panel. "Everyone should act as though there will not be another round of funding," Buyer said. "You should operate with what you have, because it may be all you get." And as older, or late-stage, private companies seek to land another funding round, Josh Tanzer, managing director of private equity firm Revolution Partners, advised companies to demonstrate to potential investors that they not only have momentum in growing their revenue but also momentum in profitability.
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