Now that the venture capital free-fall is ending, can you land
the right VC to launch your company into the big time?
True, overall venture capital investing last year was far below
the dotcom bubble years of 1999 and 2000. But, at over $36 billion,
2001 was still the third largest year in history, and 2002 looks
like it will stabilize well above historical norms. That's good
news for early-stage companies.
"During most of last year, venture capitalists spent the
majority of their time working closely with their existing
portfolio companies, leaving less time to make investments in new
companies," says Mark Heeson, president of the National
Venture Capital Association. "By the beginning of this year,
the focus was beginning to shift back toward evaluating new
opportunities."
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The numbers bear that out. According to the
PricewaterhouseCoopers/Venture Economics/National Venture Capital
Association MoneyTree Survey, prepared exclusively for
Entrepreneur, 800 start-up and early-stage companies
received their first round of venture capital in 2001. All told,
these companies got $5.4 billion, or an average of $6.8 million per
company. It doesn't exactly sound like a dearth, does it? (For
a list of firms that made the most first-round deals, see
"Top 100 Venture
Capital Firms for Entrepreneurs.")
So what are VCs looking for in this New-New Economy? Joe
Aragona, general partner at Austin Ventures, an Austin, Texas, firm
with $3.1 billion under management, explains it this way:
"Most large VC firms have decided to invest through [business]
cycles not in cycles. For early-stage investing, a premium is being
placed on management, operations and execution instead of a slick
PowerPoint presentation."
Jeffrey Harris, managing director of Warburg Pincus, a New York
City firm with $9.5 billion under management, agrees. "Both
entrepreneurs' and venture capitalists' expectations have
reverted to the norm," Harris says. "They're now
expecting that it will take years to start a successful company,
and they're pacing themselves accordingly with the appropriate
burn rates, appropriate incentive plans, and the appropriate amount
of capital to make sure the company is on solid footing."
All this hearkens a back-to-basics approach in the industry. An
environment where shirt-sleeves experience and innovative thinking
combined with venture capital create exciting, successful companies
over time. And building sustainable value is what fuels
America's economic growth.
Doing the
Numbers
Rankings are based on the number of first-time fundings to
companies in the start-up and early stages of development made by
venture capital firms and similar entities in calendar year 2001 as
measured by the "PricewaterhouseCoopers/Venture
Economics/National Venture Capital Association MoneyTree
Survey" (www.pwcmoneytree.com).
Companies in the start-up stage of development may have been in
business for only a few months. Companies in the early stage of
development have generally been in operation less than 24 months.
At minimum, all companies have a fully developed business plan, a
dedicated management team and extraordinary potential for rapid
growth.
These fundings represent the first time a company receives
financing from a professional venture capital firm in exchange for
equity. Prior to obtaining venture capital, a company generally has
received financing from the owners, employees, friends, family or
incubator or angel investors, and may have taken on debt.
Note: Due to a 56-way tie for No. 71, there are actually 126
firms in our listing.
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