Venture capital numbers can be a tricky thing to interpret. On the one hand, investing money in an unproven startup is always risky, no matter if it’s during an economic boom or recession. Plus it takes several years for a startup to develop into a company that investors can either take public or sell to another buyer. So VC numbers are not exactly the best indicator of the current market as say the S&P 500 Index.

“Despite the current economic downturn in the United States. venture capitalists are still putting money to work across multiple industries and stages of development,” said Mark Heesen, president of the National Venture Capital Association. “The continued interest in the life sciences and clean technology industries, as well the traditional IT sectors, reflects the long term investment horizon that the venture industry has always embraced.”

Still. the relentlessly upbeat sound bites from the NVCA is getting kind of annoying. For one thing, venture capital is not immune to the economy. Mr. Heeson is sounding suspiciously like a company asking investors to ignore its bad quarterly results and focus on the “long term” picture.

During the recent first quarter, VC invested $7.1 billion into startups, a 8.5 percent drop from the fourth quarter. The numbers of dollars flowing into first sequence financing fell 27 percent to $1.6 billion during this period.

The NVCA took great pains to note that first quarters are typically slow. Nevertheless, both declines were the first 4Q to 1Q drop in over three years.
There’s strong correlation between the Nasdaq index, which consists of smaller, newer companies, and the VC community, said Jay Hare, a partner at accounting firm PricewaterhouseCoopers’ technology industry group in Minneapolis. The Nasdaq is down 12 percent since early December. So it stands to reason that even VCs, for all of their money and long term perspective, are pulling back from a weak economy.

Here’s how the top ten states made out in VC investment in the first quarter. Notice how Minnesota ranks far below this list.

1. California- $3.45 billion

2. Massachusetts- $697.9 million

3. New York- $406.9 million

4. Texas $361.4 million

5. Washington state- $314.8 million

6. Colorado- $297.7 million

7. Georgia - $167.7 million

8. Maryland- $165.7 million

9. Pennsylvania- $157.7 million

10. Florida- $115.5 million

17. Minnesota- $60.1 million

This entry was posted on Monday, April 21st, 2008 at 6:46 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.