Dot-Com VC Funding Down Sharply in Q2

April’s e-commerce bloodbath had a dragging effect on the amount of money raised by venture capital-backed companies in the second quarter, according to a report released Tuesday by research company VentureOne.

E-commerce companies saw a 32 percent decline in financing during the quarter, as investors became more selective about pouring money into new ventures amid a string of dot-com failures. The dip left e-commerce with just three percent of all Internet investment, the lowest percentage in almost three years, VentureOne said.

The difficulty e-commerce companies have had finding backers contributed to a mixed venture capital picture for the quarter ended June 30th. According to the report, the $17.2 billion (US$) raised in 1,054 rounds of financing was down 6 percent from the first quarter. The median amount raised in a round of venture financing dipped to $11.2 million in the second quarter from $12 million in the first.

However, venture capital investment for the year to date is close to the total for all of 1999, and Internet companies have already raised more than they did during all of last year.

The Imperfect Storm

Sasha Talebi, director of research at the San Francisco-based VentureOne, said the figures show investment remains stronger than some might think.

“The recent public-market fluctuations led many industry watchers to anticipate an overall drop in company valuations,” Talebi said, “but in fact, companies in most sectors have weathered the storm and continue to receive financing from their venture backers.”

Internet companies currently receive 86 percent of venture capital investment, VentureOne said. Communications and infrastructure companies are seeing the bulk of the funds.

Communications Firms Send Message

Of the second quarter’s 11 deals that topped $100 million, eight involved communications firms. Boston, Massachusetts-based Carolina Broadband, a telecommunications service provider, set a record in May with a $402 million first round of financing.

The report also showed that the information technology industry is on a roll. Investment in IT firms rose 10 percent from the first quarter to $10.1 billion, with communications, information services, and software leading the way. Venture capital investment in IT companies is more than double the amount it reached a year ago.

Investment in Internet infrastructure companies rose 29 percent in the second quarter, following a 47 percent increase in the first.

VentureOne provides venture capital research to investors and entrepreneurs. The firm’s clients collectively manage close to $140 billion in venture capital.

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