Venture capital investment in the US began drying up at the beginning of 2008 and has practically calcified since then. Total investment in the first quarter of 2009 was down 60% compared with the same quarter of 2008, while first sequence investment, or the first investments made in a company from external sources, was down 65%. Venture capitalists are concentrating on helping those firms survive that are already part of their investment portfolio. That means fewer new start-ups, as well help drive growth.

R&D in existing firms is also suffering, as banks and investors have become more risk-averse. As a result, business R&D is being re-oriented towards shortterm, low-risk innovations, while longer-term, high-risk innovation projects are being cut-and highly trained researchers and innovators are losing their jobs. Small, innovative firms are particularly hard hit because for many of them, their primary asset is an idea or a patent, which is difficult to value and thus hard to borrow against or sell. Yet it's in this particular crisis that venture capital and investing in innovation could help spur a sustainable recovery. 

For more on innovation and investment, visit www.oecd.org/sti

© OECD Observer No. 274, July 2009