Venture capitalists slammed shut their wallets during the last three months of 2008, investing 45% less in Southern California start-ups than during the same period a year earlier, according to a report scheduled for release today.
The sharp fourth-quarter decline, to $422 million from $764 million, turned what was expected to be a full-year gain into a loss, according to the Dow Jones VentureSource report. Venture funding to the region's businesses in 2008 fell 20% to $3.2 billion.
There was just one bright spot: Investment in renewable energy continued its tear, climbing nearly tenfold for the year.
"The spend, spend, spend mentality is definitely over," said Frank Peters, chairman emeritus of Tech Coast Angels, which invests in Southern California companies.
Start-ups seeking funding suffered nationwide too, with fourth-quarter investments dropping 30% to $5.5 billion. The information technology and healthcare sectors were especially hard hit, falling 40% to $2.2 billion and 42% to $1.5 billion, respectively.
The grim numbers indicate that venture capitalists are hunkering down and waiting for the economy to heal before they take stakes in young companies. They seem to have come to that decision quickly, slowing their investments significantly from the third quarter to the fourth, when the financial markets crashed.
Peters said many of his colleagues at Tech Coast Angels decided to stop investing entirely for the rest of the year in October.
The Los Angeles area fared better than Southern California as a whole, with investment dollars rising 6% to $1.3 billion in 2008 from the previous year. L.A. recorded an annual gain despite a 46% drop to $105.8 million in the fourth quarter.
"It changed so fast over those three months," said Joe Marchese, who started looking for a round of financing for his L.A. company SocialVibe in September and closed a round in December. "From the time we started to when we finished, it was a different world."
Healthcare deals in Southern California fell 78% to $96.1 million in the fourth quarter.
The region's information technology sector, which includes companies such as Marchese's that work in the online media business, was one of the few areas of growth. Fourth-quarter investment in those companies, which generally don't require as much capital, grew 21% to $222.4 million.
