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VC spending dries up
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July 5, 2001: 8:36 a.m. ET
Big corporations trim venture capital spending in a volatile market
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NEW YORK (CNNfn) - Venture capital investments by big corporations are fast evaporating -- down as much as 81 percent in the first quarter – as continued market volatility in an economic downturn sours sentiment toward start-ups, according to a published report Thursday.
With the valuation of private companies sliding and initial public offerings drying up, especially in the once-sizzling computers and software sectors, VC operations at some corporations are struggling to capitalize on their investment and provide a boost to the company's bottom line, the Wall Street Journal reported.
Corporate VC spending ballooned to about $5.7 billion in 2000 from $361 million in 1995, the Journal said, citing PricewaterhouseCoopers.
Intel Corp. (INTC: Research, Estimates) expects its VC investments this year to slip below the $1.3 billion of 2000, while AT&T Corp. (T: Research, Estimates) is cutting all investment spending, the report said.
Intel said it's scaling back on its investments but plans to keep its 10-year-old VC program going, the paper said. "It's not a sideline. It's always been a means of helping our core business," the report quoted Les Vadasz, manager of Intel's venture financing, as saying. The leading chipmaker lost money when two of its VC investments – eToys and Quokka Sports – shut down in the dot.com burnout this year.
Dell Corp.'s (DELL: Research, Estimates) venture-capital portfolio shrank to $757 million from $938 million this year, with two of its investments – Digital Entertainment and All.com – dropping the shutters, the WSJ said. Cisco's (CSCO: Research, Estimates) VC holdings also fell to $1.2 billion this year from $1.39 billion six months ago.
"Corporations tend to get involved when things are smooth and money is flowing. Fewer stick with it in tough times," the paper quoted Craig Johnson, chairman of Venture Law Group, as saying.
Traditional, stand-alone venture-capital funds faced a decline in new investing of about 39 percent, the report noted, and big banks appear to be pulling back too. Wells Fargo & Co. (WFC: Research, Estimates) said it will take a second-quarter charge of about $1.13 billion, or 65 cents a share, primarily from writing down the value of its VC holdings, while J.P. Morgan Chase & Co. (JPM: Research, Estimates) said it is cutting back on the value of its VC investments, the paper said. 
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