VC funding slides in the US

Venture capital funding in the US fell slightly in the first part of the year despite first-time deals hitting a two-year high, according to new research.

For the first quarter of 2005, a total of $4.6bn was spent on 674 companies, down from $5.4bn in the fourth quarter of 2004 and equal to the third quarter.

The figures come from the latest MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

The amount of first-time investments rose to $1.2bn from an average of $1.1bn last year. First timers now account for 26 per cent of VC funding, the highest percentage in two years, compared to 21 per cent last year.

The quarter was characterised by investment in a wide range of sectors - not just the usual technology and life sciences companies but also financial services as well as industrial and healthcare services firms.

Software kept its place as the number one sector for VC cash, with $1.1bn invested in 198 companies, or 24 per cent of the total funding over the first three months of the year.

Meanwhile, telecoms fell to a total of $371m, below its two-year average, and IT services hit a two-year high of $302m thanks to one large deal.

Investment in life sciences (biotechnology and medical devices) dropped for the first time in two years, to $1.08bn compared to $1.6bn in the previous qaurter. According to Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, this shows a sensible approach by investors who are becoming careful not to overspend in one sector.