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VC tech investments slip

IT and semiconductor sectors showed some hope in the tech world, which had declining venture capital investments overall in the fourth quarter.

Venture capital investing in tech companies continued to decline in the first quarter, but the information services and semiconductor sectors showed some hope, according to a joint report released by Ernst & Young and VentureOne.

The total VC funding received by tech companies dipped to $2.26 billion in the first three months of 2003, falling from $2.56 billion in the fourth quarter of last year, and $3.79 billion in the year-ago quarter. Venture funding has fallen sharply since the dot-com heyday, when total information technology (IT) funding reached $15.29 billion in the second quarter of 2000.

The dip comes as quarterly venture capital funding in all sectors--not just IT--hit a five year low in the first quarter, dipping below $4 billion for the first time since 1997.

Venture capitalists also continued to roll back the clock to preboom days in terms of the median amount of funding. Tech companies received a median amount of just $6.25 million in the quarter, a figure comparable to 1998 levels. During the boom, the median round hovered at $10 million.

The number of funding rounds doled out to tech companies in the first quarter, 256, was the lowest since 1996.

But analysts said the first-quarter numbers don't necessarily mean the slump will continue.

"The first factor that cannot be quantified is the impact that world events and the Iraqi conflict had on possible investments," Don Williams, Pacific Southwest Venture Capital Advisory Group leader at Ernst & Young, said in a statement. "Additionally, the first quarter is often an administratively focused period for many of the fund partners as they deal with year-end matters."

There were a few glimmers of hope amid the bleak numbers.

The hard-hit information services sector, which experienced one of the steepest funding declines in 2002, posted gains. Funding in that sector jumped 70 percent to $188.2 million, from $110.8 million in the fourth quarter. The information services sector also received more funding in the first quarter than it did during any individual quarter in 2002.

Semiconductor funding also had gains, mostly due to 3D chip equipment maker Matrix Semiconductor, which landed $52 million in funding during the quarter.

Chips have remained one of the few bright spots for venture funding.