VC dollars reflect economy; chip industry holds even


Rachel Robinson

Associate Editor WaferNews

While total venture capital investment dollars dropped some 21% from 1Q01 to 2Q01, the chip industry fared a bit better. Semiconductor investment dollars dropped 16%, with six chip companies yet to be totaled. The final percentage decrease will be more like only 10%, according to Raman Chitkara, global managing partner of the semiconductor industry group at PricewaterhouseCoopers.

While any decline is undesirable, among those sectors that decreased from 1Q to 2Q, the semiconductor industry posted the smallest drop, raising $412.7 million in 2Q compared to $489.1 million in 1Q01, down $76.4 million. The communications and networking sector lost the most funding dollars ($1.3 billion), raising 43% less funding in 2Q01 than in the first quarter. The second largest percentage drop ($692 million) came from the consumer and business services sector, which raised 38% less funding in 2Q01 from 1Q01. Those numbers are substantially bigger than the 21% average loss.

Not all industries posted negative numbers, however. The big winner was the healthcare services sector, which raised 125% more venture capital dollars in 2Q01 than in 1Q01. While the actual dollar amounts were on the lower end, ($106.5 million for 2Q, against $47.3 million in 1Q) the jump in percentage takes the number one spot. The medical software and information services sector raised 65% more money in 2Q01, bringing its total to $ 286.4 million, against 1Q01’s $174 million.

In 2Q01, 669 deals were closed, according to PricewaterhouseCoopers’ MoneyTree Survey in partnership with VentureOne. That is an 11% decrease from 1Q01’s 752. However, the semiconductor industry remained flat quarter-to-quarter, with 36 deals in each.

The communications and networking sector closed 37 less deals in 2Q01 than in 1Q01, lowering the average dollar amount per deal to $19.5 million from $24.1 million, while the software sector closed 18 less deals bringing its average dollar per deal to $9.4 million from 1Q’s $10.7 million.

On the growth side, the medical software and information services sector gained 12 deals in 2Q01, and kept its average dollar per deal at $9.2 million, just slightly less than the software sector.

All in all, while the numbers do reflect the weak economy, there is reason to be hopeful, according to Chitkara. While overall VC funding may decrease again slightly in 3Q01, the third quarter will mark the stabilizing point, and for the first time in 2001, 4Q01 should be flat, rather than down.


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