Where venture capital is not in a death spiral

Amid reports of a precipitous drop in venture capital financing for the first quarter,  there’s some good–at at least not so bad–news.

VCs invested $3 billion in 549 deals in the first quarter, a decline of 47%  from the quarter before and 61% from first quarter 2008, according to the latest report from the National Venture Capital Association and Pricewaterhouse Coopers.

But I just saw an analysis of the numbers for three regions–Silicon Valley, New England and the New York metro area. It looked at results from 2004 to first quarter 2009 and showed that the  really big drop is occurring in Silicon Valley.

What you see is that the total amount raised in Silicon Valley which was running between $8bn and $10bn per year dropped to an annualized rate of less than $5bn, a 50% reduction. At the same time, the total amount raised in New England, which was running between $3bn and $4bn, dropped to an annualized rate of below $2bn, a drop of 1/3. And in the NY Metro market, we saw a small decline, but nothing to get excited about.

The explanation is that investment in capital-intensive sectors (the majority of clean-tech businesses, for example) has taken the biggest nose dive.  And those deals are particularly prevalent in Silicon Valley. In New York, on the other hand,  investments tend to be a) smaller and b) in sectors requiring a low capital outlay.

Certainly, a “small decline” is great compared to a 50% drop. In venture capital, as everywhere, flat is the new up.