In an earlier post, we reported some of the major findings from Library House’s Q2 2008 Quarterly Briefing. The most significant of these was a 33.6% drop in investment in the most recent quarter across Europe, from €1.43bn in Q1 2008, to just €949m in Q2 2008.

This raises the question: are VC-Firms spooked by the credit crunch and the resultant change in economic conditions, and as such holding off on making investments? Or are they being more selective in the types of companies or sectors that they invest in?

To further explore this we interviewed a few VCs to get their perspectives on the current investment landscape and whether this has changed compared to last year.

Some think that there has not been a visible effect of the credit crunch in the VC investment market. Balderton Capital co-founder George Coelho, who recently joined cleantech-focused Good Energies, thinks that nothing has changed, with VCs still being busy in both Europe and the US. With regards to the Cleantech sector, he stated that there also hasn’t been an effect so far, with lots of competition for deals. He also said that although the amount of investment for web companies may be affected, he is not worried about the impact of the credit crunch and economic downturn on the VC field overall.

However, other VC’s are less optimistic. Frederic Court, of Advent Venture Partners, believes that people are now being more cautious, with deals taking more time. He also believes that it could be harder for early stage companies, and companies which raised early round funding 2 years ago and are now seeking to raise funding in the near future.

Interestingly, Mr Court also thinks that the IPO market is closed at the moment, which is supported by Library House data. Many entrepreneurs are also moving to the view that a trade sale is the most likely exit option in the short term.

The increased caution of investors has been apparent from other VCs that we have spoken to. Nic Brisbourne, of DFJ Esprit, also believes that investors are being more cautious in certain sectors, particularly ventures associated with the financial sector. He said that VCs are aware of the general economic climate, and will focus on sectors that are likely to be unaffected by the economic downturn.

The underlying messages were positive, which is testimony to the robustness of the sector. All of the VCs that we spoke to believed that good companies will continue to receive investment, no matter what the economic climate. The view was that whilst there will probably be a slight decline in the VC investment market, as caution takes hold, this won’t be anything like the significant downturn that was witnessed in the financial sector.

All this suggests that VCs are not spooked, but are rather aware of the current economic climate, and are tending to be more selective in the sectors in which they operate, and the deals that they make. It will be interesting to see how this plays out in the coming months and whether Q3 2008 figures show signs of an upturn.