Venture capital investments plunged last year

Investment by venture capital firms declined last year to its lowest point in more than a decade, according to a report scheduled to be released Friday.

There were 2,795 investments worth $17.7 billion in 2009, a 37 percent decline in dollar value compared with 2008, according to the report from PricewaterhouseCoopers and the National Venture Capital Association, which analyzed data provided by Thomson Reuters. The number of deals decreased 30 percent.

The Washington area had 117 deals totaling about $540 million for 2009, compared with $985 million the previous year. That level of investment put Washington in the middle of the pack nationally, based on the report's accounting, which divides the country into 19 regions. The Washington area trailed regions such as Los Angeles, the New York metro area and San Diego.

Mark Esposito, director of the emerging company services group at PricewaterhouseCooper, said the findings show that the amount of venture capital investment increased as the year went on. During the first quarter of the year, for instance, there was only $80 million worth of investment in local firms; by the fourth quarter, that number had grown to $163 million.

"Without a doubt, it looks like we hit a trough somewhere in the first half of 2009, both locally and nationally," he said.

Esposito pointed to bright spots on the local scene such as social media development firm LivingSocial, which landed $5 million in investment capital from investors such as Steve Case, and the Rockville-based drug developer Zyngenia, which raised $10 million.

For the Washington area, some of the largest investments last year targeted the software, biotech and telecommunications industries. Software led the pack, with venture capital investments totaling almost $98 million. Biotech firms and telecommunications companies took in $88 million and more than $82 million, respectively.

In a call with reporters on Thursday, PricewaterhouseCoopers partner Danny Wallace said 2009 marked the first year that nationally, the biotech industry nudged past the software industry to grab a larger chunk of investment capital.

Other than that, venture capital activity in the Washington area generally mirrored larger national trends, Esposito said, though he pointed to one growing industry that is not yet well represented in the area. "We didn't see much on the 'clean tech' side here," he said, referring to the movement toward products and technology that help reduce energy consumption. "Most of that continues to be on the West Coast."

At least one local venture capital firm, Walker Ventures, announced last year that it was winding down operations and would not seek to raise a new investment fund.

Founder Steve Walker said at the time that the economic conditions were simply too rough to raise enough investor interest. "This isn't the end of early stage investing," he said, "but it's a time period when that's not something most people want to consider."

By Mike Musgrove
Washington Post
January 22, 2010