Investing Blog

First quarter venture capital for 2008 was off by 5%, the lowest since 2005. While the sure signs of a market contraction aren’t showing themselves fully ( two consecutive quarters of negative GDP growth) its looking like investors aren’t finding any investment worthy businesses.

This news is more forward looking than a look back. Venture capital investment usually turns into profitable businesses soon to go IPO. It could be that the slowdown in 2005 affected market slowdown in 2007, although its hard to draw a direct line. Venture capital firms helped start giants like Google, Apple, Microsoft, virtually every large corporation publicly held is the product of large investment dollars from these firms. Its easy to see how a slowdown in venture capital can slow market growth and sputter out the IPO market.

There is good news though, total investments numbered 922 up from 861 from last year. There are plenty of businesses looking for infusions of cash, but investors aren’t willing to fork up the money. What we’re seeing is nothing like the 1998-99 boom of VC investment which propped up every dotcom there was. Internet companies are still taking a sizeable amount of venture capital investment, about $1.3 Billion per quarter. Apparently VC firms are still looking for the high growth rates of the internet and protection from a recession-wary public.

Business is the key to maintaining growth. Slowing venture capital means that businesses are fighting for less money which could slow future growth. This kind of news is nothing we want to see in a slowdown, but proves that investors are looking for better places for their investment dollars. We’ll have to see how this plays out, venture capital is the source of all future growth on the market. This news alone tells me we’re in a slowdown.

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