IPOs are in a deep freeze as Venture Capital Investments Plunge 61%.

U.S. venture capital investments fell 61 percent to $3 billion in the first quarter, the lowest level in 12 years, as the financial crisis chased away funding for technology and clean-energy deals.

Funding of clean technology — coming off a surge of investments in 2007 and 2008 — plunged 87 percent, the National Venture Capital Association said today. Total venture investments dropped 47 percent from the previous three months.

The freeze in initial public offerings kept startups from getting funding because investors weren’t sure how they would earn a return, said John Taylor, vice president of research at the Arlington, Virginia-based association. Venture capitalists are devoting more attention to companies they already own.

“We are in a very difficult, stressed time,” Taylor said on a conference call. “Everyone is trying to figure out what is going on.”

Venture capitalists are now wary of the large financial commitments needed to commercialize technologies such as solar power and ethanol, said Noubar Afeyan, chief executive officer of Flagship Ventures in Cambridge, Massachusetts. The investments don’t seem to provide a quick payoff, he said.

“A lot of that money came in expecting a short-term exit, which didn’t happen,” Afeyan said.

Yes, this is a difficult, stressed time. However, figuring out what is going on should be quite easy by now. What’s going on is called deflation. Dollars are scarce, demand for them is high, and unless there is an immediate or at least quick payback to new startups (which there almost never is), money is hard to come by.

Here’s the deal: If you are a startup in need of another round of funding, the grim news is your company may not survive.

Mike “Mish” Shedlock
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