Venture Capital firms have shifted their strategy of early stage investments with high risk but high returns in favor of later-stage investments. This year’s Global Venture Capital Survey, released by Deloitte, shows that deal flow has slowed down as fewer investments are being made by VC firms.  Entrepreneurs aiming to start a new venture during this recession may encounter increased difficulty in securing funding. According to the survey, 51 percent of 725 venture capitalists surveyed are decreasing the number of investments made, whereas only 13 percent are increasing the number of companies to invest in. 

Although fewer investments are being made overall, there are several sectors that are expecting continued growth during this recession.  Clean technology and medical devices are poised to see sustained growth.  Six in 10 surveyed said they will be increasing their investments in clean technology and one in three surveyed said they will increase their investments in medical devices.  Other growth sectors indicated by the survey include new media, consumer business, bio pharma, and software.

The survey also showed that Venture Capital firms are shying away from new start-ups during the recession as they look for reassurance in more mature companies that can almost guarantee a payout.

Although investments in the US by domestic firms have decreased, entrepreneurs seeking investments for their endeavors can look to international funding as new opportunity.  Over 50% of the respondents surveyed said they have made investments outside their home countries.

Venture Capital firms once known for their risky bets have abandoned their traditional strategy in favor of safer investments that will almost guarantee a solid financial return.  However, the growth of startups does not seem to have slow down in the western US.  Even these unfavorable conditions have not dissuaded innovators from striking out on their own and starting their own business.

A recent study by the Kauffman Foundation examined the effect of recession on the number of startups.  According to Kauffman Senior Fellow Paul Kedrosky:

Across all years, the results show that it is slightly more likely a post-1975 IPO came from a non-recessionary period. That group’s productivity was eighty-three companies per year, while the recession subset’s productivity was seventy companies per year that went public. If, however, we remove the Great Depression and WWII, both of which introduce some unrepresentativeness, we end up with 138 companies/year from expansion periods, and 140 from recession periods. In other words, these data suggest that the likelihood of a company being part of the public IPO set post-1975 is unrelated to whether it came from a recessionary or non-recessionary period.

This study bodes well for those seeking to dive into entrepreneurship in the current economic climate as it seems that recessions have small to no impact on the number of firms started.