Plunge in venture capital accelerated in 4Q

Local venture capital investment continued to fall in the fourth quarter of 2008, according to a new survey by Dow Jones VentureSource.

A total of $182.5 million was invested in San Diego County companies, falling 57 percent from the same quarter a year ago and marking the fourth consecutive quarterly decline. In the third quarter, funding totaled $264.17 million. In the fourth quarter of 2007, $426.56 million was invested.

The slump means far less money was pouring into local companies. Funding was most drastically reduced for health care-related companies, including those in biotechnology.

Health care companies locally received just $51.21 million in the fourth quarter. That's up from $20.44 million invested in the third quarter, but far lower than the fourth quarter of 2007, when $325.87 million was invested.

Health and biotech investments have historically made up two-thirds of San Diego County venture capital investment, reflecting the area's strong biotech industry.

The yearly total local venture investment was $1.144 billion, compared with $1.910 billion in 2007. Nationally, the 2008 total was $28.8 billion, down from $31.4 billion in 2007.

A lack of large financings drove down health care investment totals, said Ben Kuo, publisher of SoCalTECH, an online publication that tracks venture capital.

The largest venture financings are most often in health care, because of the high cost of drug research and development, coupled with the prospect of high profit margins for the resulting pharmaceuticals.

But with financial markets "frozen up," venture capital firms aren't looking at the long term. They're restricting funding to their most important investments, said Duane Roth, chief executive of Connect. The San Diego-based nonprofit encourages technology and entrepreneurship.

"The venture capitalists are only funding the real solid ones," Roth said. "They'll protect them as long as they can and then figure out what to do."

However, Roth said big pharmaceutical companies have brightened the picture by making their own investments and purchases.

http://www.nctimes.com/articles/2009/01/20/business/z95f061282eb

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Plunge in venture capital accelerated in 4Q