Tech sector hit hardest in venture slump
After a strong showing last year, venture capital investments in greater Los Angeles slid 49% in the first quarter, according to a report scheduled for release today.
Venture capitalists poured $202.3 million into companies based in Los Angeles, Orange, Riverside and San Bernardino counties, down from $395.6 million during the same period last year, research firm Dow Jones VentureSource said. The information technology sector was hit hardest, with investment in both communications and Web companies falling significantly.
Nationally, the slowest deal-making pace in three years led venture investments to fall 7% to $6.84 billion. Investment in healthcare was hit particularly hard, slumping 43%. Investment in the information services sector, which includes Web companies, more than doubled from the same period last year.
The drop in healthcare investing might be an early sign that the volatile public markets are spooking venture capitalists, said Valerie Foo, research manager at Dow Jones VentureSource, which produced the report.
“Most healthcare companies try to look toward the IPO [initial public offering] market,” she said. “But it’s taking them longer to exit.”
San Diego, hit hard by the decreased healthcare funding, fell 53% to $310.44 million.
Southern California healthcare sector companies received 28 financing rounds, exceeding by two the total from last year’s first quarter. But those companies pulled in $386.4 million, down sharply from $732.1 million a year earlier.
Analysts were not troubled by the slowing pace of investments, saying that Southern California numbers were strong but faced difficult comparisons with the peak of an investment run-up a year earlier. They noted that L.A.-area firms pulled in 11% more than they did in the fourth quarter.
Los Angeles had four deals worth more than $20 million and seven deals worth more than $10 million, said Michael Schoenfeld, Ernst & Young’s director for the Pacific Southwest venture capital advisory group. Although investment in information technology, at $150.25 million, dropped 56%, it still surpassed the investments in the first quarters of 2005, ’04 and ’03.
“It shows a lot of confidence by the venture capitalists investing in a market where everyone understands there’s a lot of economic uncertainty,” Schoenfeld said.
Right now, venture firms are raising money rather than spending it, he said. In the first quarter, 57 funds raised $6.2 billion nationwide.
“Whenever there’s tumult in the market, it gives everyone a little bit of pause,” said Ross Levinsohn, a Los Angeles-based partner with Velocity Interactive Group, a venture firm specializing in digital media and communication.
Southern California reclaimed its place as the nation’s No. 2 region for venture investment, bypassing New England, which fell 40% to $577 million.
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