In what cannot be considered a surprise to anyone living in the real world, venture capital investment is drying up. Investments in the third quarter declined to the lowest level in almost two years. VCs invested $7.1 billion in startups and emerging companies across a range of industries in the third quarter of 2008, a 7% decline from the second quarter when $7.7 billion was invested, according to a just-released report from PricewaterhouseCoopers and the National Venture Capital Association that’s based on data from Thomson Reuters.
The numbers show that funding was tightening even before September’s financial-market craziness, leaving many experts believing things will only get worse. “We do expect a dip in investing over the next several quarters,” says Tracy Lefteroff, global managing partner of PWC’s VC practice.
The key question is, What happens next? Conventional wisdom settling over entrepreneur land is that VC funding will become even more scarce and that a growing percentage of available funding will go to later-stage companies, which are finding it impossible to exit into the IPO market.
Earlier this month, one of Silicon Valley's most prominent venture-capital firms, Sequoia Capital, summoned entrepreneurs to its headquarters for a dose of gloom and doom. A PowerPoint presentation used in the event, titled "R.I.P. Good Times," warned that the current crisis is global and recovery will take a long time. Companies must cut jobs, save cash and expect smaller capital raises.
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