Venture Capital Activity Plummets

With losses from their high-rolling days still piling up, shellshocked venture capitalists continued to shun new risks in the third quarter, dropping the industry’s investment activity to a 4 1/2-year low, according to a report due to be released today.

Venture capitalists invested $4.48 billion in start-ups during the period ended Sept. 30, the weakest quarter since the first three months of 1998, according to a survey compiled by PricewaterhouseCoopers, Venture Economics and the National Venture Capital Assn.

The quarterly results represented a 48% decrease from the same time last year, when venture capitalists poured $8.68 billion into start-ups, the report said.

It also marked the ninth consecutive quarter in which venture capitalists curtailed their investments from the preceding three-month period.

The reasons for the downturn have remained mostly unchanged since the Internet gold rush turned into a financial blood bath during the spring of 2000.

As the stock market began to turn a cold shoulder to dot-coms and other high-tech businesses, venture capitalists found themselves stuck with unprofitable start-ups no one else wanted.

Meanwhile, even promising start-ups are finding it increasingly difficult to find customers interested in spending heavily on technology, further reducing their chances of survival and saddling venture capitalists with the worst losses in the industry’s history.

Most venture capitalists and analysts believe the industry’s investments will dwindle even more in the next few quarters.

“We haven’t seen the end of the decline,” said Robert “Robin” Bellas, a general partner with Morganthaler Ventures.