U.S. venture capital investments dropped overall, and the software industry felt the impact, but it also retained its throne as the biggest single industry category in terms of both dollars and deals.
Across all industries, VC firms in the United States invested $5.4 billion spanning 818 deals, marking a decline of 8 percent dollar-wise and 4 percent fewer actual deals, constituting a 26 percent drop from the $7.3 billion invested in the third quarter of 2008, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters detailed in a conference call for press and analysts on Friday.
"This marks the first decline since 2003," says Matthew Toole, research director, private equity, at Thomson Reuters.
The software industry, for its part, spiraled downward to its lowest quarterly investment level in 10 years: $1 billion. The number of deals also declined, to 194, which marks the fewest software companies funded since 1997. But the numbers for all of 2008 are not as gloomy as the fourth quarter. Annual declines were 10 percent to $4.9 billion and 7 percent to 881 companies.
But there's good news for those in the IT and software industries.
"As expected, software was still the largest quarterly sector despite the 10-year low," says Tracy Lefteroff, global managing partner, venture capital and private equity practice, at PricewaterhouseCoopers.
Also among the top five categories, which Lefteroff says comprised 71 percent of total VC investments, are biotech, industrial/energy, medical devices and equipment, and media and entertainment.
The overall IT realm pulled in $13.3 billion in VC money in 2008, $4.9 billion of which flowed into software investments, $2 billion into media and entertainment, $1.8 into IT services, $1.6 billion toward telecom, $1.6 billion into semiconductors, $644 million to networking, and $573 million went into electronics and instrumentation.
What's more, $1.3 billion went to startups being funded for the first time, PwC's Lefteroff adds. "Any suggestions that the industry has turned away from early stage companies is unfounded," explains John Taylor, vice president of research for the NVCA.
Pascal Levensohn, founder and managing partner at Levensohn Venture Partners, pointed out that , including smart grid, cyber infrastructure, and national broadband, hold the promise of keeping money flowing into the technology industry.
"Technology will be one of the best-positioned sectors coming out of this mess," Levensohn says.