More Signs of Trouble in the Innovation Ecosystem

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The Q1 2009 venture capital investment statistics
are in, and they are down, BIG.
nobody expected a strong showing given the environment, the magnitude of the across-the-board declines should give everyone pause.

(Note: Source for graphic at right, Judy Estrin, Closing the Innovation Gap)

In the speech that I gave at the DHS CATCH conference in Washington,D.C. on March 4th and on the panel that I
moderated at
Stanford on March 18th at ITSEF III, I pointed out that one developing impact of the global financial crisis that was not yet evident in the financial statistics would be accelerated declines in
new capital formation from venture-backed companies because capital normally dedicated to long-term risk has been severely drained from our equity markets—both public and private.

The following data comes from The MoneyTree(TM) Report by PricewaterhouseCoopers and the
National Venture Capital Association
based on data from Thomson Reuters:

"Quarterly investment activity was down 47 percent
in dollars and 37 percent in deals from the fourth quarter of 2008 when $5.7
billion was invested in 866 deals.
The quarter, which saw double digit declines in every
major industry sector, marks the lowest venture investment level since 1997.

Seed and Early stage investing fell 45 percent in terms of
dollars and 40 percent in terms of deals in the first quarter of 2009

with $852 million invested into 204 deals, compared to the fourth quarter when
venture capitalists invested $1.6 billion into 338 deals. Seed/Early stage
deals accounted for 37 percent of total deal volume in the first quarter, down
from 39 percent in the prior quarter.


The dollar value of first-time deals (companies receiving
venture capital for the first time) declined by 48 percent to $596 million
going into 132 first rounds
, compared to the fourth quarter of 2008
when $1.1 billion went into 246 first-time deals.
First-time financings accounted for 20
percent of all dollars and 24 percent of all deals in the first quarter
compared to 20 percent of all dollars and 28 percent of all deals in the fourth
quarter of 2008.

The Clean Tech sector, which … comprises alternative energy,
pollution and recycling, power supplies and conservation, saw a substantial
drop in investment levels
with $154 million going into 33 deals in
the first quarter.
This represented an 84 percent decline in the dollar
level in the Clean Tech sector
from the fourth quarter of 2008 when
$971 million went into 67 deals. This quarter marks the lowest investment level
for the Clean Tech sector since 2005.

The Life Sciences sector (Biotechnology and Medical Devices combined)
experienced a 40 percent decline in terms of dollars and a 31 percent drop in
with $989 million going
into 133 rounds."

New capital formation, particularly first time
financings, plants the seeds for the next generation of successful companies
that are going to be creating new jobs and a sustainable cycle of economic
  New Technology,
particularly Cleantech and Life Sciences investments, are critical focal points
for the Obama administration.

With California unemployment now over 11%, it is
hard to see a reversal in this trend developing in Q2.

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