According to an analysis of Thomson Reuters research data, in the first quarter of 2009, venture capital investment dropped to lows which have not been seen since before the dot-com bubble. According to the analysis, done by the National Venture Capital Association and PricewaterhouseCoopers, venture capital firms only invested $3 billion in 549 young companies in the first quarter, the lowest investment level since 1997. This is47% lower than the fourth quarter of 2008 and 61% lower than the first quarter of 2008.

Even though all major technology sectors were hurt severely by these changes, clean technology start-up companies were affected the most. In the first quarter clean technology investments experienced a decline of 84% since the fourth quarter of 2008 with only $154 million being invested into 33 companies. This is the lowed level since 2005 which was just before clean technology began to be popular.

The bumpy road of clean-technology investment resembles earlier bubbles in genomics and the Internet, said Noubar Afeyan, chief executive of Flagship Ventures. “As is the case in hot sectors in venture, too much money goes into too many companies,” he said.

Though investors remain interested in new alternative-energy ideas, the drought in initial public offerings and the seized-up credit markets have made them nervous. “We are continuing to see a lot of innovation coming out of universities and government labs, but the big challenge looming is how any of these will be scaled and who will pay for them to see the light of commercial day,” Mr. Afeyan said.

There was a 42% drop in investments in software companies since the fourth quarter of 2008. They only received $614 million. Quadriserv, which creates market data software for securities lending, was the biggest deal recorded in the sector, raising $34 million. Investments in internet companies raised only $556 million which is a 31% drop from the fourth quarter of last year. The biggest deals in this sector were Obopay, a mobile phone payment service, and Twitter, the microblogging site, which each raised $35 million.

Biotechnology and medical device companies raised $989 million, which is a decline of 40% from the fourth quarter of last year . 5 of the 10 biggest deals in the quarter were medical companies, the biggest of which was Anacor Pharmaceuticals, which makes drugs for inflammatory and infectious diseases and raised who $50 million. According to Mr. Afeyan, investors are most interested in technologies that save doctors and patients money, like devices that detect disease early or cost-efficient drugs.

Venture firms have been bruised by the economic crisis, which has made initial public offerings of venture-backed companies almost impossible and acquisitions much harder to come by. As a result, investors are not giving money to start-up companies and instead are funneling time and money into existing portfolio companies. Only 132 start-ups raised money for the first time which is the lowest number in 15 years.

Though venture capital funds raised $4.3 billion in the first quarter to invest in new companies, most are doing so slowly, waiting to see if the markets improve.

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Posted by Shosh Pincus

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