U.S. companies that rely on venture capital investment to expand their businesses and hire employees have struggled to raise money this year, new data show.
The trend came to light in a pair of recent quarterly venture capital reports that used different data to arrive at the same conclusion: Investors aren’t pouring as much money into young companies as they were this time last year.
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Analysts are quick to caution that a single quarter does not make a trend. That’s true. But investments are down for the first nine months of the year overall, making it unlikely that 2012 will post end-of-year results that are the same as or better than 2011.
The recession brought venture capital investments to their lowest point in a decade as investors hit the breaks on new deals, using their money instead to keep existing businesses afloat.
Although the past two years have seen the venture industry gradually regain its footing, figures still hover well below pre-recession levels. And if the latest reports are any indication, a complete recovery may be a distant goal.
U.S. firms collected $6.9 billion in 820 venture capital deals during the third quarter of the year, a 32 percent drop in dollar value and 9 percent decline in number of deals compared with the same period last year, according to a Dow Jones VentureSource report released last week.
The year-to-date numbers are less drastic. Dow Jones VentureSource tallied $22.8 billion raised by U.S. companies in 2,525 deals thus far into 2012, a 15 percent decline in dollars and 3 percent slide in deals compared with the first nine months of 2011.
A venture capital roundup from PricewaterhouseCoopers and the National Venture Capital Association also released last week found similar trends.
Although it may be a more challenging environment for some companies to secure investments, the most promising ventures can still find the capital they need.
“Things will turn around in this industry. It’s a question of when,” said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers.
“The strong companies do survive in this environment, they do get funded, and at some point down the road we’ll see this trend turn around . . . and we will see returns come back,” Lefteroff said.
Analysts and investors point to a confluence of factors dragging the numbers down, including the uncertainty surrounding the presidential election, now less than two weeks away.
President Obama and his Republican challenger, Mitt Romney, have presented different, if sometimes hard to define, tax plans that could result in wealthy Americans and investors paying new tax rates on income and capital gains.
What’s more, the threat of the George W. Bush-era tax cuts hitting their January expiration date without renewal creates added uncertainty for investors who would have to pay higher taxes when they cash out of their investments.
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