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Venture capital investments drop in second quarter

VENTURE capitalists cut their United States investments in half during the spring, the second consecutive quarter to mark a more than 50 percent decline, leaving the money flowing to startups at the slowest trickle in 12 years.

Nearly US$3.7 billion poured into 612 venture-capital deals in the three months ending in June, according to statistics released yesterday by PricewaterhouseCoopers, Thomson Reuters and the National Venture Capital Association.

The dollars invested represented a 51 percent drop from more than US$7.5 billion during the same period last year. The erosion followed the first quarter's year-on-year drop of 58 percent to US$3.2 billion.

It's the first time US venture capitalists have invested less than US$7 billion during the first half of a year since they anted up US$6.5 billion from January through June in 1997.

After that, the dot-com boom unleashed a flood of venture capital that culminated in the dot-com bust in 2001. Venture capitalists have been investing between US$9 billion and US$15 billion during the first halves of the years since then.

Venture capitalists have become more cautious as the worst US recession since World War II has unfolded. The horrible economy has made it tougher for startups to complete initial public offerings or find buyers. The paucity of IPOs and buyouts have made it difficult for venture capitalists to cash out of their existing investments, giving them less incentive to finance new deals.

"We desperately need the IPO market to come back, but I'm not looking for it yet," said David Jones Jr., managing director of Chrysalis Ventures in Louisville, Kentucky.

With more startups forced to remain private, entrepreneurs with fresh ideas are having trouble lining up financing.

Later-stage startups accounted for about one-third of the venture capital deals completed in the second quarter.

Biotechnology received the most venture capital in the quarter at US$888 million, down 16 percent from the same time last year. Venture capitalists like biotechnology because big pharmaceutical firms remain interested in buying startups that have promising drugs.


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