Biotech Start-Ups Get Less Venture Capital
In 2008, venture capitalists in the Washington area were consenting to gamble on an idea that might be assuring, pouring hundreds of millions of dollars during the first quarter into projects such as an e-commerce site and a social network for music fans. However, during the first three months of 2009, investments have fallen to their lowest level since 1997, and start-ups without customers, revenue and an air-tight business model have little hope of receiving money.
Investors have put just $59.1 million into 20 deals in the region since January 1, down from $237.7 million into 49 deals during the corresponding period a year ago. The drop reflects the uncertainty felt by both venture capitalists and enterprisers in this tight economical time.
The clean-tech and biotech sectors underwent some of the largest declines. Both industries require a good deal of capital to get off the ground and take years, if not decades, to begin making money.
There are worries about consumer spending and business spending. There aren’t numerous customers for these companies right now.
Quarterly investment funds activity in the region was down 75 percent from the comparable period a year ago, and down 83 percent from the fourth quarter of 2008.
Institutional investors, such as pension funds, have less money to entrust to venture capitalists, which in turn gives them less money to invest in new companies, analysts said. As a result, many firms are concentrating on existing portfolio companies, instead of making new investments in other start-ups.
It’s not unforeseen that the VCs would pause to assess the impact on their portfolio companies before again looking forward to their next investment.
The scenario is playing out across the nation. Venture capitalists invested $3 billion in 549 deals, a 47 percent drop in dollars and a 37 percent drop in deals over the first quarter of 2008. The quarter saw double-digit declines in every major industry sector.
Investment in biotechnology fell 46 percent to $577 million in the quarter nationwide. In the Washington region, biotechnology investment fell 92 percent with $447,400 going into five deals.
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