Newspaper article THE JOURNAL RECORD

Venture Capital Firms' Investing Plunges in 2000 Fourth Quarter

Newspaper article THE JOURNAL RECORD

Venture Capital Firms' Investing Plunges in 2000 Fourth Quarter

Article excerpt

SAN FRANCISCO (NYT) -- Validating anecdotal evidence and increasingly conventional wisdom, an analysis released on Monday shows that investing by venture capital firms plummeted in the fourth quarter of last year, with investors shying away from start- ups and instead shoring up struggling companies they had previously funded.

The analysis, from the National Venture Capital Association and Venture Economics, found that venture capitalists invested $19.6 billion in the last three months of 2000. That is down from $28.3 billion in investing the previous quarter, and the lowest figure since the third quarter of 1999.

"We have slowed down and the watchword right now is `caution,'" said Steve Lazarus, a partner in Arch Venture Partners and a board member of the National Venture Capital Association, an industry trade group. Lazarus added the pullback in investing does not represent an anomaly but rather a return to a more traditional state of affairs following the dot-com boom.

"The upsurge in the number of deals was a one-time event," Lazarus said, saying he was referring to the 18 months prior to March 2000. "We are returning to the kind of pace we saw in the `80s and early `90s."

In spite of the retreat in the fourth quarter, venture capitalists invested at record levels in 2000, pouring $103 billion into 5,380 companies. That is an increase of 73.5 percent over the $59.4 billion invested in 3,967 companies in 1999.

Representatives of the National Venture Capital Association and Venture Economics, a division of the Thomson Financial, sought to emphasize the growth of the industry, and the record pace of investment. But they acknowledged that venture capitalists are finding themselves putting relatively more time and money into sustaining companies already in their portfolios than in investing in new ones.

The report found that in the fourth quarter of 2000, venture capitalists placed 25.5 percent of their investments into new ventures. In all of 2000, they put 33.3 percent of investments into new ventures.

That is a sharp fall-off from the two previous years; new entities received 42. …

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