VC Spending Up Slightly In Q4 2001

According to a newly published survey, venture investment hit the $7.1 billion mark in the fourth quarter last year, up slightly from the $7 billion spent in the previous quarter. The figure is still way off the record $26 billion of VC money invested in the first quarter of 2000. Those billions fueled the dot-com boom, and the subsequent falloff in spending reflects deflated expectations surrounding the dot-com bust.

The figures are courtesy of the latest PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree Survey. This is the first time that figures from Pricewaterhouse/Venture Economics were combined with those from the other groups.

One bright spot was biotech, hardly a surprise, given the great promise that sector holds for growth. The Life Sciences sector, which includes biotechnology, medical devices and equipment as well as health-care services, garnered 18.5 percent of total investment in the fourth quarter, up from just under 8 percent in the previous quarter, according to the study. What raised more eyebrows was the money devoted to software development, which some might have thought had burned through enough cash already. Software accounted for 22.5 percent of total investment, up from 16.9 percent in the preceding quarter.

Software remains a good place to be, said Kirk Walden, national director of the PricewaterhouseCoopers Moneytree Survey. "This spending is not to take existing packages and tweak them, it's not reconfiguring existing software to run in the ASP model. It's people writing new software. It's a fundamental return to basics," he said.

E-tailing and retailing were among the big losers in the fourth quarter. "That segment is in the tank. The numbers become scary when you look at them. 2000 was the peak year with $18.3 billion invested, and the vast majority of that was Internet stuff. Compare that to the full calender year last year ... the total investment was $3.6 billion. You don't have to be a brain surgeon to see that that business went away," Walden said.

The fourth quarter saw 856 VC-backed deals launched, up from 810 in the previous quarter but significantly down from the previous year. There were more than 1,500 deals funded during each quarter of 2000. For 2001, $36.5 billion in venture capital was invested in the United States, compared with $99.6 billion for 2000 and $52.5 billion for 1999.

The consensus among the survey researchers was that the VC spending downward spiral has bottomed out, Walden said.

The biggest question -- how much venture capital was lost in the explosion of dot-com and other failures in the past two years, will likely remain unanswered. Privately held VC firms are loathe to broadcast their own failures, observers said.

VCs report only to their limited partners. "They're under no obligation to tell the public what's been lost," Walden said.