Slow Q1 for VCs

(Telephony) Venture capital investments in the first quarter fell to levels not seen since 1999, according to two separate sets of statistics released this week.

According to the PricewaterhouseCoopers MoneyTree survey, $10.1 billion in equity financing—a superset of venture capital investing—was invested in venture-backed companies in the first quarter, 40% less than the $16.8 billion invested in the comparable period last year. The number of financing rounds dropped 34%, to 692. Venture capital-only investment slid 39% to $8.8 billion.

“The decline is not unexpected in light of the pessimistic public markets, though the magnitude of the drop is severe,” said a statement by Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers.

Venture capital activity as tracked by the National Venture Capital Association (NVCA) for the most part mirrored those results. Venture capital investments dropped to $11.7 billion in the first quarter, the lowest total since the first quarter of 1999, according to the NVCA. The average amount invested in a company dropped to $10.94 million from $15.24 million.

The fall-off in equity financings in the communications sector, which previously had been immune to some of the downturn, was stark. About $3.0 billion in equity was invested in communications companies in the quarter, down from $5.7 billion last year, according to the Pricewaterhouse Coopers MoneyTree survey. The number of rounds dropped to 109 from 194, although the median amount invested in a round of funding rose to $18 million from $16.5 million, as companies sought more cash to stay private longer.

Venture capital investments in communications fell to $2.4 billion from $4.1 billion, and corporate investments fell to $55.9 million from $311.1 million, according to PricewaterhouseCoopers.

The “tremendous influx” of capital between the second quarter of 1999 and the first quarter of 2000 overshadows the fact that the current level of investment in venture-backed companies is still about twice the amount being invested two years ago, before the “Internet-funding craze,” said Dave Witherow, president and CEO of VentureOne, which teamed with PricewaterhouseCoopers on the survey.

Internet companies still accounted for 75% of all equity financings, although dollar investments fell to $7.6 billion compared to $13.4 billion in the fourth quarter of 2000, said PricewaterhouseCoopers. The Internet infrastructure segment was hit hard, dropping 52% to $2.1 billion.