The Thrill of the Chase

VC Funding in 2003

The first time is always the hardest. And it got harder in the first quarter of 2003, according to the "MoneyTree Survey." The number of companies receiving venture capital for the first time fell to 131. Of those, 95 were in the start-up or early phases of their development, generally less than 2 years old. The remaining 36 were further along, in the expansion or later stages of development.

It has been widely acknowledged that venture capitalists have raised the bar on what it takes to get funding in the first place. More surprising is what they have not done--they have not abandoned nascent companies in favor of more established ones. As the chart below shows, when it comes to first-time financings, venture capitalists continue to favor formative-stage companies. More than 70 percent of funded companies in the first quarter of 2003 were in the start-up or early stages.

More encouraging still, the trend data shows that the percentage of those companies has tended to drift upward over time. Through the inevitable business cycles, including the post-boom years of 2001 and 2002, venture capitalists continue to weight their initial bets toward a future that can be five to seven years away. That's how long it can take for a first-time investment in a start-up to pay off.

The entrepreneurs who make the cut in today's economic environment will be a hardy lot. Exploiting innovation, finding venture backing and building a successful business is a marathon, not a sprint. For many, it's a race worth running. --K.W.

Tracy T. Lefteroff is the global managing partner of the Venture Capital Practice at PricewaterhouseCoopers. Kirk Walden is national director of venture capital research for PricewaterhouseCoopers

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This article was originally published in the July 2003 print edition of Entrepreneur with the headline: The Thrill of the Chase.

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