The tumultuous economic events of summer, including a debt crisis in Europe and an economic impasse in Washington, D.C., were factors in the slide, said Mark Heesen, president of the National Venture Capital Association.
The number of deals nationally fell to 876 in the third quarter compared with 1,015 in the previous quarter. The number of New England deals declined to 108, down from 120 in the second quarter.
“It was a tough quarter,’’ Heesen said. “It definitely caused venture capital firms to pull back.’’
But New England’s drop in funding in the third quarter was accelerated by a national trend away from venture investing in the life sciences, one of the region’s strongest economic engines. Nationally, investments in the life sciences sector, which includes biotechnology and medical devices, fell 18 percent in the third quarter to $1.8 billion, compared with the previous quarter; there were only 170 deals, the second-lowest quarterly volume since the first quarter of 2005.
Money pouring into the clean technology sector, another area where New England is traditionally strong, decreased 13 percent nationally to $891 million in the third quarter, down from $1 billion the previous quarter.
One reason both sectors attracted fewer dollars: Young life sciences and clean tech companies generally demand significant amounts of funding that often take at least seven or eight years to generate the returns that venture capitalists expect.
During an unstable economic climate, venture capitalists shy away from those kinds of deals in favor of smaller investments with the potential for faster returns.
“The third quarter was a rocky investment climate generally,’’ said Kevin Shaw, partner in PricewaterhouseCoopers’ emerging company services practice in Boston. “That takes its toll on larger, longer-term investments like life sciences and clean technology.’’
The increasing difficulty and uncertainty of earning approval from the Food and Drug Administration has also dampened venture capitalists’ enthusiasm for life sciences companies, said Heesen of the National Venture Capital Association.
