Venture investments slip 8% in 2008

Web-centric startups are still attracting dollars, but it's slowing down

Entrepreneurs seeking to raise capital are probably glad the end of 2008 is over as the tough economic environment caused everyone to tighten their purse strings.

In 2008, venture capitalists poured $28.8 billion in funds into 2,550 deals, down 8% from $31.4 billion invested in 2,823 deals a year earlier, according to DowJones VentureSource.

The drop came mostly from a sluggish fourth quarter, the lowest quarterly investment period since 2005. In Q4, 554 deals raised a total of $5.5 billion, down 30% from $7.9 billion raised in the year-ago quarter when 718 deals received funds.

While venture capitalists put record amounts into energy investments in 2008, "software-specific" investment fell to the lowest level in a decade as under $5 billion was invested into 566 deals.

But Web-centric information services companies continued to be very attractive to investors, though not as attractive as the early part of 2008. The sector saw $2.7 billion invested in 357 deals, up 17% from $2.3 billion the year prior. But the investments were not as robust as the record $821 million invested in Q1 2008.

Whether the investments in 2009 will go down is unclear. What is clear, however, is that there may be some room to go on the downside as the amount of money that went into investments last year still topped the $28.2 billion invested in 2006.