US worries burst venture capital bubble

Click to follow
The Independent Online

Last year's US venture capital bubble has burst in dramatic fashion, with new investments so far this year plunging at the fastest rate on record. Research published today showed that the outlook for the US venture capital market was weak, although there was evidence western Europe would enjoy a record year.

Last year's US venture capital bubble has burst in dramatic fashion, with new investments so far this year plunging at the fastest rate on record. Research published today showed that the outlook for the US venture capital market was weak, although there was evidence western Europe would enjoy a record year.

Figures from 3i, the UK venture capital outfit, and accountants PricewaterhouseCoopers showed a record $126.3bn (£87bn) of private equity and venture capital was invested in North America last year. Butfund-raising in the first half of 2001 had slumped by more than a third, driven by a fall in new buy-out funds.

Venture capital investment plunged by 65 per cent to just $18.6bn so far this year compared with 2000's $52.4bn, which 3i said was the greatest ever decrease in absolute terms. Meanwhile, buy-outs in the first quarter of 2001 fell "far short" of any previous quarter in the last seven years in terms of deal volumes

"It is unlikely that buy-out activity will pick up much before the end of 2001, the main issue being uncertainty about prospects for the US economy," the report said.

However, Tracy Lefteroff, a global managing partner at PwC, said the sudden collapse had to be put in context of 2000's record performance. "The fact is 2001 will still be the third biggest year in US venture capital history," she said. "All other factors being equal 2002 will be a better year."

While western Europe has also suffered from the collapse in the tech sector, the fall in stock markets and the economic slowdown, buy-out investment has had a "strong start" to the year.

The report said that a number of deals in excess of $1bn had been completed, pushing total buy-out investment in the first six months to the same level as a year ago.

Comments