US VC investment halves globally; down 29% in India

American venture capital investment globally halved in the March quarter of 2009, dipping to a five-year low of $1.87 billion, while in India it was down by 29 per cent.

In India, US venture capitalists invested $101 million in 13 deals in the first quarter, 29 per cent less than the $142 million via 22 deals in the March quarter of 2008, as per data compiled by research firm Dow Jones VentureSource.

Venture capitalists put $1.87 billion, the lowest quarterly total since 2004, via 250 deals for emerging companies in India, China, Europe and Israel in the first quarter as fund managers prefer assured returns from portfolio investment.

VC investment in this region in the March quarter of 2008 stood at $3.65 billion through 430 transactions.

In terms of average deal value, India ranked the second-most expensive destination, after China, in the emerging markets with the median deal size of over $4.2 million in the quarter.

"VCs are faced with challenges on both ends of the investment lifecycle, as liquidity markets are virtually shut down in the face of the economic crisis and cash-strapped limited partners are reluctant to back new venture funds without a clear promise of returns," Dow Jones VentureSource director (Global Research) Jessica Canning said.

VC investment in China in March quarter dropped 58 per cent to $426 million via 34 deals, while Europe saw 170 deals garner $1.18 billion, a 35 per cent drop over the year-ago period.

"This is the first time we have seen such a collective pullback in worldwide venture investment, and it points to a deeper trend within the industry for VCs to conserve fund capital, make very selective investments and focus on existing portfolio companies," Canning added.

According to the US deal tracking firm, during the March quarter, the cost of doing VC deals globally, except Europe, got cheaper as fund managers turned cautious to conserve their capital.

The US saw its median deal size dropping to $5.5 million, down 18 per cent from $6.7 million in the first quarter. China represents the most expensive destination for venture capital with a median deal size of $8 million, as per VentureSource data.

Of the deals announced, including those in the previous quarter, 477 deals worth $3.89 billion were completed during the March quarter, a 50 per cent decline over the year-ago period.

"While none of this is good news for the industry as a whole, it is seed and early-stage companies that are likely to suffer the most," Canning added.