Large IT vendors with venture capital arms, which reaped generous returns on start-up investments over the last few years, have significantly curtailed investing during the first three months of 2001, according to a recent PricewaterhouseCoopers LLP survey.

Intel Corp., for example, made 163 investments in startups last year; but during the first quarter of 2001 the chip giant made only 19. Cisco Systems Inc., another large investor, made only 7 investments in the first quarter, compared to 45 in all of last year.

In fact, according to the research, venture investing by IT vendors has decreased even more in the first quarter of this year than private investing by professional venture firms. Venture money invested by IT vendors fell 81 percent, compared to a 39 percent drop in investments by professional venture capital firms.

Technology companies jumped into the start-up investing game in the mid-90s to help fund companies with technology they deemed strategic to their own products, or simply to cash in on the initial public offering craze at the end of the decade. Since the stock market drop last year, the potential for start-ups to go public -- and for their investors to cash in -- has virtually disappeared.

"The environment for corporate investing is perhaps more dramatically affected by the public markets than private investing," said Kirk Walden, national director of venture capital research with PricewaterhouseCoopers in Austin, Texas. He said that public companies have been quicker to pull back on investing because, for the most part, their own stocks are trading low. "If your stock is depressed, you react (to the market) more quickly," he said, compared to professional venture capitalists that are investing money from limited partners.

Often an established IT vendor will invest in a startup with an eye towards eventually acquiring the young company. "If your stock price is depressed, suddenly it costs more stock (to acquire a company). Start-up valuations go down, too, but there's a lag" between when public stocks sink and when private company valuations adjust accordingly, Walden said.

PricewaterhouseCoopers' research includes only investments in companies that also have professional venture capitalists as investors. The research also excludes "in kind" deals, where equity is traded for equipment purchase contracts or other goods or services.

PricewaterhouseCooper's MoneyTree Survey is conducted in partnership with VentureOne research firm.