Venture money investments down in Q3

Venture-capital investments for the third quarter fell to their lowest quarterly total since the first quarter of 1999, making it likely that by at the end of the year total venture capital money invested will be at its lowest level since 1998.

Venture capitalists invested $7.7 billion in 873 companies during the quarter--a 31% decline from the second quarter and a 73% decline from the year-ago period--according to statistics from Venture Economics and the National Venture Capital Association (NVCA).

More than 81% of the total venture investments were for follow-on financings, an indication that VCs still spend most of their time and resources on existing portfolio companies. Expansion-stage companies attracted 53.4% of total investments, compared to 19.4% for early-stage companies and less than 1% for start-up and seed-stage financings.

Communications and media companies continue to draw a healthy portion of VC dollars, with 22% of third-quarter venture investments going to the sector, according to the NVCA study.

Venture capitalists raised $6.2 billion in funds in the quarter, which represents a 37% decline from the second quarter and a 78% decline from the year-ago period. The average fund size raised was $134 million.

As of Sept. 30, the estimated amount of venture capital raised by venture firms but not yet invested was $45 billion. The large overhang means many firms will not need to raise additional money in the near future, the NVCA said.

Data released earlier in the month by the NVCA and Venture Economics showed that, while returns on venture capital have fallen, venture funds have outperformed the public markets. For the one-year period ending June 30 venture capital produced a loss of 18.2%, about half the 36.2% loss posted by Nasdaq stocks during the period.

--Vincent Ryan, senior editor