Tech venture capital dries up in 2009

Tech startups in the US struggled to find investment last year

Venture capital (VC) investment in early-stage US IT companies suffered a dramatic 35 per cent fall last year compared with 2008.

A total of 817 deals were made in 2009, with an overall value of $6.1bn (£3.8bn), according to a new report from market analyst VentureSource.

The figures represent the IT industry's weakest period since 1996, and the first time that IT was not the VC industry's leading investment sector, VentureSource said.

The report added that investment started to pick up in the fourth quarter of 2009 when $2bn (£1.24bn) was put into 250 IT deals, up 11 per cent from the same period last year.

Software companies took the largest chunk of investment, as they have since 2001. VC investors spent $2.9bn (£1.8bn) on 487 software deals during the year, a 43 per cent decline from the previous year.

VentureSource based its finding on surveys with VC firms, interviews with chief executives and secondary sources. The figures relate only to investments in early-stage companies.

"After years of a balanced portfolio, investors made a startling retreat from early-stage companies in 2009," said Jessica Canning, VentureSource global research director.

"Venture investors gave a much needed infusion of capital into the IT sector in the fourth quarter. As the exit markets open up, and older companies are acquired or go public, it is likely that younger startups will begin to see more deals and dollars."