Venture capital investment in the first quarter of 2001 fell 56 per cent from last year and only 1072 companies were funded in the first quarter, the lowest level in two years.
The drop in venture capital funding, used to fuel technology and other kinds of entrepreneurial startups, reflects the rising challenges venture investors face in achieving their goals of 30 to 50 per cent returns on their capital, according to the National Venture Capital Association, an industry trade group, and its economic arm, Venture Economics.
The groups also said the slowdown is in line with national venture capital trends. Venture capital investments in the US fell to $11.7bn during the first three months of the year, down more than 50 per cent from the first quarter of 2000.
Joshua Radler, a spokesman for Venture Economics, said: "You have to look at the economy as a whole. The public markets have taken a beating and the venture capitalists are starting to take care of the companies already in their portfolios."
Internet investing is by no means dead, though. Venture capitalists poured $2.2bn into internet companies in the first quarter, down from a peak of $8.5bn in the first quarter 2000.
Separately, a survey by PricewaterhouseCoopers and VentureOne reported that investments in Silicon Valley startups fell by almost half from the fourth quarter, the biggest drop on record.
Silicon Valley's share of US venture capital also dropped to 30.3 per cent from an average of 36.8 per cent over the past two years.
The figures show that venture capitalists have cut off funding for thousands of startups. Investment into local companies dropped to $3.06bn in the first quarter, from $5.86bn in the fourth quarter, and nationwide, investment in startups fell to $10.1bn from $16.8bn.
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