In contrast, for the previous seven quarters, venture capital investments had steadily increased. In fact, some industry observers say Q4's numbers were only the beginning, that this year will see a steady decrease in the amount of venture capital pledged for e-commerce companies. The premise of venture capital has been sorely tested online. Venture capital is considered a high yield investment vehicle that offers cash to startups with exceptional growth potential. While there is always a risk inherent in such investments, once the risk begins tipping the scales away from a promise of high returns, logic dictates that investors will retreat.
Venture capitalists are different animals than other investors.
Decisions about where to invest are often made on a fast and furious basis. Once the momentum begins, VCs expect the returns to materialize more rapidly than other investments. The return on dot-com investments didn't come as quickly as the VCs want. It's not that the investors didn't stick it out longer than some said they would. But when the shakeout hit, causing numerous dot-com failures, investments began to dry up.