Venture Funding Sinks in Q1, Though Healthcare Fares Better than Most Sectors
BY DAVID KRESSEL, APRIL 21, 2009
The Wall Street Journal reported this week on a decline in first quarter venture funding, with venture-backed companies raising only $3.9 billion, down about 50% from 1Q:09. The Journal adds that this represents the lowest quarterly disbursement by VC firms since 1998 and the fewest number of deals since 1996, according to data from VentureSource.
In this cautious environment, healthcare rounds fared better than the average, recording a 34% decline 1Q:09 compared to 1Q:08. Among musculoskeletal companies, there were only three private placements in 1Q:09, a 40% decrease from 1Q:09 and a 70% decrease in total dollars invested.
The investment climate reflects venture capitalists' concerns about funding current portfolio companies facing a sluggish M&A and IPO market as well as a wariness of unproven technology. In 1Q:09, seed and first rounds declined 40% in terms of number of deals and 45% in terms of dollars. However, in a statement, National Venture Capital Association President Mark Heesen said that he thought the worst of this decline was over, even suggesting that there could be a "mild and steady increase in investment throughout the rest of the year."
Although this news is negative for entrepreneurs trying to bring innovation to market, venture capitalists are measured on how much they return to their investors, not how much they invest. Less supply of VC dollars may lead to better returns for an asset class that hasn't seen good returns for a number of years.
