Some Businesses Will Strike Out

Venture capitalists stem the cash flow for the third consecutive quarter.

Everyone is expecting VC spending to ease back this year, but now we have proof. VentureWire, a Technologic Partners newsletter that tracks VC spending, has tallied first-quarter results. A total of 1,051 private companies have raised $14.5 billion in venture capital, down significantly from last years first-quarter total of 1,855 companies raising $27.7 billion. Early-stage deals took the brunt, falling by more than half to 327 from last years 656. Most VCs are busy saving the later-stage companies already in their portfolio.

VentureWire suggests VCs will invest about $47 billion this year, less than half of last years record $108 billion, but still 15 percent ahead of 1999. Some industry sectors will fare better than others. In Q1, investments in wireless firms rose 16 percent, while investments in networking-hardware companies dropped just 5 percent. But Internet services companies saw the bucks drop 35 percent.

The Q1 decline is the third consecutive quarterly drop in VC spending, the first time thats happened since the period following the October 1987 market crash. Economic doomsayers looking for a third-consecutive-quarter drop in anything can now yell, "Recession!" in a crowded room.