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Signs point to first national funding increase since 2000
Venture capital funding may finally be pulling out of a four year slump.
Investing nationwide is projected to be around $20 billion in 2004, up from $18.7 billion in 2003, according to MoneyTree Survey data.
If that figure holds official tallies are due later this month it would mark the first increase in national venture funding since 2000.
The survey, prepared late last week by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association, said that investors are targeting a much broader range of technologies and companies than in years past.
I think we definitely turned the corner as far as VC funding, said Tracy Lefteroff, global managing partner, venture capital and private equity practice at PricewaterhouseCoopers.
While the number of dollars invested is still far below the more than $105 billion invested in 2000, Mr. Lefteroff said indicators are moving in the right direction.
There were a lot more large rounds of financing in 2004 than there were in 2003, he said. In 2003, there were 13 deals in excess of $50 million. In 2004, there could be … 20 or more.
He pointed to the $105 million raised by Internet telephony firm Vonage Holdings Corp. and the $110 million raised by online matchmaker eHarmony.com Inc.
But John Jaggers, general partner in Dallas with venture capital firm Sevin Rosen Funds, said that theres a limit to how much money can be effectively invested in start ups.
I have always said that our industry can spend or invest $10 billion very effectively every year, he said At $20 billion, its kind of a big question mark in my mind. North of $20 billion, I think its not a good thing.
He said venture funding could increase again in 2005, but it would not represent a setback if funding were to decline slightly.
Mr. Lefteroff said companies are attracting those sums because the number of initial public offerings is rising, allowing investors to profitably cash out their investments.
I think one of the bigger factors is the fact that the IPO window started to open up again, he said.
A report released Monday by Thomson Venture Economics and the National Venture Capital Association said that there were 93 IPOs in 2004 by companies that had received venture funding.
The total value of those 93 companies at the time of their IPOs was $11.01 billion, more than all the venture-backed IPOs in the previous three years combined.
John Taylor, vice president of research at the NVCA, said the average time from first round of funding to IPO is typically six or seven years, and 62 percent of the companies that went public in 2004 received their first funding between 1997 and 2000.
I think one thing thats misunderstood about the IPO market is the reason were seeing the increase is because these companies finally have enough maturity to go public, he said. Its not that the IPO markets are embracing anything more liberally or are somehow more accepting. I dont think the IPO market has changed at all.
Companies that go public also know that they have to have a source of revenue, Mr. Taylor said.
The consumer sector, you can sell things based on whats hot, he said. But in the commercial area, you have to be able to show to a cost benefit analysis.
Found in The Dallas Morning News

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