Jackpot!

Reality Check

In the first quarter of 2001, early-stage, pre-IPO companies raised less money than they have since the second quarter of 1999. According to the "PricewaterhouseCoopers MoneyTree Survey in Partnership With VentureOne," total equity financings in venture-backed companies fell to $10.1 billion in the first quarter of 2001, a 40 percent drop from the last quarter of 2000. That represents the steepest quarter-to-quarter drop in history in terms of absolute dollars.

What does that mean for companies seeking financing? The number of businesses receiving early-stage funding dropped from 453 in fourth quarter 2000 to 235 in first quarter 2001, a 48 percent decline. Yet the median dollar amount each business received fell only 13 percent, from $10.9 million to $9.5 million per company (see below for first quarter investments for the last three years). So while it's more difficult for companies to get backing, those that do, get plenty of it to grow rapidly. Plus, industry sectors like networking, telecommunications, consumer and business services and software continue to attract huge amounts of funding compared to mid-1990s levels.

The dramatic drop-off in investing doesn't necessarily indicate a significant economic downturn. Setting aside the Internet gold rush of the last two years, the current climate is still more aggressive than historical norms and will likely remain that way. The bottom line is that entrepreneurs need more than just a new idea to get funding.

-Tracy T. Lefterof, Global Managing Partner,
Venture Capital Practice, PricewaterhouseCoopers
Median Amount Invested per Round of
Equity Financing ($M)
INDUSTRY 1999
Q1
2000
Q1
2001
Q1
Biopharmaceuticals $7.40 $11.38 $13.00
Communications $6.00 $16.50 $18.00
Consumer/Business Products $4.14 $14.50 $3.10
Consumer/Business Services $3.50 $10.00 $6.80
Electronics $4.00 $8.70 $12.25
Health-Care Services $5.75 $5.50 $6.50
Industrial $3.55 $2.00 $5.00
Information Services $6.00 $10.00 $9.00
Medical Devices $4.00 $6.00 $9.70
Medical IS $4.55 $14.00 $9.00
Retailers $10.00 $20.50 $6.90
Semiconductors $4.20 $10.00 $12.30
Software $5.19 $9.00 $9.50
Grand Median $5.00 $10.00 $9.50
Equity financings include cash investments by professional venture capital
firms, corporations, private placement and individuals into companies that
have received at least one round of professional venture capital.

SOURCE: "PricewatehouseCoopers Money Tree Survey
in Partnership with VentureOne"

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This article was originally published in the July 2001 print edition of Entrepreneur with the headline: Jackpot!.

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