Good luck with that funding: Q1 sees lowest VC investment in more than a decade

There are two new reports about the state of venture capital investing during the first three months of 2009, and they’re even bleaker than I expected. Remember when everyone was hoping that the economic downturn wouldn’t hit the tech industry as badly as after the last bubble? Well, on the VC side, things are actually worse than they were post-bubble — Q1 2009 saw the lowest amount of investing since either 1997 or 1998 (depending on whose numbers you’re using). Perhaps even more surprising, cleantech took the biggest hit by far.

So here are the numbers: Venture firms invested a total of $3.0 billion in 549 deals, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, which uses data from Thomson Reuters. In terms of dollars invested, that’s a drop of 47 percent since the fourth quarter of 2008, when $5.6 billion went into 866 deals. And keep in mind, Q4 was after the crunch, so the numbers were already falling. Compared to Q1 2008, it’s a drop of 61 percent. Meanwhile, Dow Jones VentureSource says $3.9 billion was invested in 477 deals, a drop of 50 percent since the same period last year.

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Still, a drop of 50 or even 60 percent isn’t as bad as the virtual evaporation of funding for cleantech, which saw $154 million go into 33 deals, according to the MoneyTree Report, down a 84 percent from Q4. The sector could certainly bounce back, but those numbers are particularly mind-boggling since it was previously seen as the silver lining in the dark clouds hovering over venture, and in fact NVCA President Mark Heesen just told us cleantech might become the largest area of venture investment in 10 years. Other industries fared a little better:

• Software investments totaled $614 million in 138 deals, down 42 percent in dollars compared to Q4.
• Life science investments totaled $989 million in 133 deals, down 46 percent.
• Internet-specific investments total $556 million in 123 deals, down 31 percent.

(Those are MoneyTree’s numbers, you can see the VentureSource industry breakdown in the chart below.)

In terms of the deal stage, expansion investments (those between early- and later-stage deals) fell the most, with a 60 percent decline in dollars from Q4, down to $820 million in 146 deals, according to MoneyTree. Seed and early-stage deals fell 45 percent to $852 million in 204 deals, and later-stage investments fell 35 percent to $1.3 billion in 199 deals. As for average deal size, it fell 15 percent to $5.5 million.

At least Silicon Valley residents can comfort themselves that they’re still at the center of VC investment, with the San Francisco Bay Area attracting 30 percent of deals.  On the other hand, the region also saw its lowest investment in more than a decade.

John Taylor, the NVCA’s Vice President of Research, said that there were some deals that started in Q1 but didn’t finish, so there’s hope for a recovery Q2. Even if it happens, it probably not a huge recovery, but at times like this, we should be glad for what we can get. Let’s hope that the best companies can still find funding and make it through these lean years.