Monday, October 20, 2008

WSJ: Entrepreneurs Feel Squeeze as Venture Capital Gets Scarce

"Venture capitalists are reining in spending amid the financial downturn, a shift that has implications for entrepreneurial activity.
According to two sets of data pegged for release Saturday, venture capitalists did fewer new financings of companies and spent less money in the third quarter than they did a year earlier. Venture capitalists typically put money into young companies, with the aim of profiting later when those start-ups go public or are acquired.
Venture capitalists arranged 571 financings totaling $7.2 billion for the third quarter, down from 651 deals totaling $7.8 billion a year earlier, according to research firm VentureSource. VentureSource is owned by News Corp., which also publishes The Wall Street Journal.
The National Venture Capital Association, a trade group, and PricewaterhouseCoopers found a similar trend, noting that venture investors put $7.1 billion into companies in the third quarter, down from $7.8 billion a year earlier.
The amount invested was the lowest quarterly number since late 2006.
The slowdown has repercussions for entrepreneurs in sectors such as technology and life sciences, many of whom rely on venture funding to kick off and grow their companies.
"Entrepreneurs are seeing lots of their traditional avenues of finance getting whittled away," says Mark Heesen, president of the National Venture Capital Association. He adds that he has a "high level of concern" for the overall health of the venture industry."

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