After the Flood

Reality Check

Find out who's really getting their hands on venture capital in this tough marketplace.
By Kirk Walden

With the slide in overall investing in the first quarter of 2002, it would be easy to conclude that companies looking for their first round of venture financing are being hit hardest as venture capital firms focus on companies in which they have already invested. But that's not the case.

The number of companies receiving venture capital for the first time did drop in the first quarter. (See the chart below.) But as a percentage of the total number of deals, first-time financings accounted for around 24 percent--about the same as past quarters. Further, companies that did get funding got more of it. The average capital amount per company has been steadily increasing over the past three quarters.

Of course it helps to be in the right industry. Venture capital tends to be tech-centric, and software remains the most popular industry by far. On the other hand, networking has stalled, telecommunications has fallen out of favor, and information technology services is nearly nonexistent. More traditional industries like consumer products, business products and retailing have settled down around typical historical levels.

It's a demanding environment for the entrepreneur, but those who succeed are rewarded with more funding and fewer market competitors than the conventional wisdom proffers.

First-Time Financings by Industry
Number of Deals - Q3 2001, Q4 2001, Q1 2002
Industry 2001 2002
Qtr 3 Qtr 4 Qtr 1
Software 62 54 48

Biotechnology 27 24 24

Telecommunications 35 23 15

Industrial/Energy 18 14 14

Media and Entertainment 7 7 13

Networking and Equipment 10 17 12

Medical Devices and Equipment 12 16 11

Retailing/Distribution 15 10 8

Business Products and Services 8 10 5

Computers and Peripherals 6 6 5

Financial Services 4 3 5

Semiconductors 12 10 5

Consumer Products and Services 8 9 4

IT Services 20 6 4

Electronics/Instrumentation 3 4 3

Healthcare Services 2 2 2

Other 5 9 14

Grand Total Deals 254 224 192

Grand Total Amount $1,251,155,200 $1,239,033,800 $1,267,205,800

Average Deal Size $4,925,808 $5,531,401 $6,600,030

Kirk Walden is the director of venture capital research at PricewaterhouseCoopers.

Tracy T. Lefteroff is the global managing partner of the Venture Capital Practice for PricewaterhouseCoopers.

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This article was originally published in the July 2002 print edition of Entrepreneur with the headline: After the Flood.

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