Venture Firms’ Investments in Start-Ups Hit 2-Year Low

U.S. venture capital funds remained stingy with their cash in the second quarter, as their total investments in young companies fell 61% from a year earlier to $10.6 billion--the third consecutive quarterly decline and the lowest amount invested in more than two years.

Venture firms invested an average of $10.83 million each in 982 companies, the National Venture Capital Assn. and Venture Economics said Monday. The last time funds invested so little in so few start-ups was in the first quarter of 1999, when they put $7.3 billion in 879 companies. In the second quarter of 2000, the totals were $27.2 billion in 1,873 companies.

New outlays have plunged amid the technology-sector crash and as many venture funds focus on keeping previously funded firms afloat.

“The external environment we operate in has just flipped over to the point where the need for speed is not there right now,” said Dixon Doll, managing general partner of DCM Doll Capital Management in Palo Alto, Calif., which manages almost $700 million in three funds.

“One of the things that made VCs quick to make commitments was the fear of losing an opportunity to competition. I think everybody feels less concerned about that by quite a bit.”

Funds also are demanding more progress from fledgling companies before putting in more money as the prospect of a quick cash-out via an initial public stock offering evaporates, Doll said.

Life sciences start-ups--including biotech and health-care firms--got a bigger piece of the smaller venture investment pie in the second quarter, data show. Life sciences accounted for 13.8% of the total invested, up from 4% a year earlier.

By contrast, Internet-related companies received 28% of new dollars, down from 48% a year earlier.