Tech woes still weighing on venture capital

SAN FRANCISCO: Venture capital, sagging under the weight of this year's

technology market meltdown, continued to tighten in the third quarter, and

venture capitalists faced a hard time pitching cautious investors, industry

analysts said on Monday.

Venture capital investment totaled $7.7 billion in the third quarter, down 31

per cent from the previous quarter and off 73 per cent from the year-earlier

tally of $28.5 billion, the industry's high-water mark, analysts with the

National Venture Capital Association industry group and Venture Economics

research firm said.

Cutbacks in corporate spending on information technology are rippling through

the tech industry and especially are weighing on privately held IT-related

start-ups backed by venture capital, analysts said. The third quarter's

investment level is comparable to $7.2 billion invested in the first quarter of

1999, then considered extremely healthy, they said. The groups said 2001 venture

investments through the third quarter topped $31 billion, meaning if no venture

investments are made in the fourth quarter, the venture industry would still

manage to post its third most active investment year ever, down substantially

from a record $104 billion in 2000 and behind $57 billion invested in 1999.

Venture capitalists are finding investors less willing to sign on with

venture funds compared with recent years, but the venture industry is on track

in 2001 to post its third-best year ever for raising cash to buy stakes in pre-IPO

companies. Venture capitalists raised $6.2 billion in the third quarter, 37 per

cent less than $9.9 billion in the second quarter and 78 per cent less than

$27.6 billion in third-quarter 2000, NVCA and Venture Economics said.

The groups noted many venture firms are working overtime to raise cash,

hinting a shake out ahead for the venture industry, until recently a magnet for

financiers seeking to ride a boom in buying pre-IPO shares of technology

start-ups. But analysts said experienced venture firms continue to attract

investment dollars, and their industry has an estimated $45 billion to $50

billion in committed, uninvested capital.

Despite the fund-raising slowdown, venture capitalists through the third

quarter raised $34 billion, ahead of a total $30.5 billion raised in 1998,

analysts said. Venture capitalists raised $59.8 billion in 1999, followed by a

record $106.8 billion in 2000 before the IPO market, especially for technology

shares, contracted.

(C) reuters Limited.