Venture capital investment fell by a sharp 18 percent in the fourth quarter–the third consecutive quarterly decline–and money for e-commerce ventures has virtually dried up, a national survey indicates.
Yet despite the downturn, venture investment last year totaled a whopping $68.8 billion. That’s 80 percent more than was invested in 1999 and nearly 11 times the total for 1995, according to the quarterly survey by PricewaterhouseCoopers in conjunction with VentureOne Corp.
When the dust finally settles from the Internet bust, experts say, venture capital investment in fast-growing high-tech firms will be at far higher levels than before the Internet boom.
“The Internet was overhyped and now the decline is getting a lot of notice,” said Kirk Walden, PricewaterhouseCoopers national director of venture capital research. “But the fact is, venture capital coffers are full, and investing isn’t going to stop.”
Indeed, venture capitalist Warren Packard, a managing director at California’s Draper Fisher Jurvetson, was in Chicago Tuesday judging a business-plan competition sponsored by McKinsey & Co. and First Tuesday, an entrepreneur networking group.
“We have a lot of money, and it’s going to get spent,” Packard said.
Nonetheless, the fallout from last spring’s tech wreck on Wall Street hit Internet entrepreneurs disproportionately, the survey indicates.
After five years of steady growth, investment in Internet firms peaked in last year’s first quarter before declining, both in real numbers and as a percentage of total venture capital investment.
Internet investment comprised 80 percent of the total venture capital invested in the fourth quarter, down from 86 percent in the first quarter. For all of 2000, Internet investment totaled $56.9 billion, according to the survey.
Hardest hit by the investing downturn were e-commerce companies, which garnered a total $1.8 billion last year–half the previous year’s total and about 3 percent of total Internet investment.
“E-commerce is comatose,” Walden said. “But the Internet is not dead.”
Among the Internet sectors that gained were companies that provide business services, from Web design to online financial clearing and settlement. This sector received about $24 billion from venture backers last year–double the previous year’s total, Walden said.
Internet infrastructure companies–mainly networking and high-speed data providers–received $11.3 billion last year, or nearly triple the amount invested in 1999.
Looking ahead, Walden said he expects venture capitalists will invest less this year than last, but more than in 1999.
Said Packard, “Venture capitalists definitely have gotten more conservative. But confidence will come back. It’s going to take a little bit of time.”
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