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The Great VC Squeeze of 2001

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Venture Capital investment tumbled 40 per cent in the first quarter of 2001, the biggest sequential drop on record.

Venture-backed companies in the US raised $10.1 billion during the first three months of the year, compared with $16.8 billion in Q4 of 2000, according to a survey by PricewaterhouseCoopers and VentureOne.

In Q1 last year, venture capital investment was almost $20 billion.

The number of financing rounds fell 34 per cent to 692. Start-up companies got stuck with a thinner slice of the pie - they netted around a quarter of the cash, compared to 30 per cent in Q4 2000.

The Q1 investment figure marked the fifth consecutive drop in venture capital cash. Virtually all IT sectors were affected during the period, including electronics and computer hardware, and semiconductors, which all saw investment fall by at least 50 per cent.

"It's important to put this quarter in perspective," said Dave Witherow, VentureOne CEO.

"There was a tremendous influx of capital between Q2 1999 and Q1 2000, and this has been followed by four quarters of decline - but the current level of investment in venture-backed companies is still about twice the amount being invested two years ago, before the Internet funding craze took off."

But VCs still have faith in dotcoms - surprising, considering the current death rate (55 more shut their doors in April). Internet companies still account for around 75 per cent of investments, the survey found, but the amount of dollars ploughed into this sector fell 43 per cent sequentially to $7.6 billion in Q1.

The only Internet companies that saw investment increase were ISPs - they grabbed $1.1 billion, due to relatively big investments in a small number of companies. ®

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