The Thrill of the Chase
Nowadays, it seems venture capitalists are an endangered species, but your chances of finding VC funding are better than you think. We'll help you track down investors with our 3rd Annual VC 100.
Where can a serious entrepreneur find venture backing in 2003?
Go back to the future. That's where the venture capital
industry is headed. According to the "MoneyTree Survey"
from PricewaterhouseCoopers, Thomson Venture Economics and the
National Venture Capital Association, total venture capital
investing in 2002 fell to $21.2 billion, its lowest level in five
years. A special analysis prepared exclusively for Entrepreneur
shows that out of a total of 3,000 firms attracting venture
capital, only 530 start-up and early-stage companies got their
first round of funding in 2002--the fewest since 1994. The trends may seem discouraging, but they represent a return to
historical norms after a spike of unsustainable proportions. Bill
Elmore, general partner of Foundation Capital, a Silicon Valley
fund with $200 million under management, puts it this way:
"Too many companies were funded over the last three or four
years, and the failure rate jumped. Today, the hurdle to make a new
investment is way up. But don't mistake patience for
pessimism." Roger Novak, general partner of Novak-Biddle in McLean,
Virginia, another fund with $200 million under management, agrees:
"This is a good time to be an early-stage investor. The
entrepreneurs we're seeing have well-thought-out business
models. Furthermore, when we fund a company, we're not seeing
eight or 10 competitors coming in behind them in 12 to 18
months." | Venture
Capital 100 | | To go to our VC 100 listing,
click here. To read our online
exclusive on the state of venture capital in the first quarter of
2003, click here.
And to read about three entrepreneurs who found success through VC
funding, keep reading. |
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Successful firms that were founded in tough economic times are
the stuff legends are made of--companies like Compaq Computer and
Lotus Development in the early 1980s and Palm Computing and
Starbucks in the early 1990s. The market today is more akin to
those time periods than to the boom that peaked in 2000. Mark
Heesen, president of the National Venture Capital Association,
notes this return to a traditional approach. "Venture
capitalists are still taking calculated risks on new companies but
realize that these new relationships will likely span many years
and require several additional rounds of capital," he
says. An entrepreneur today has to banish the notion that every new
idea will be given its due, that "every dog has its day."
That may have been partially true during the boom years, but a lot
of those companies turned out to be real dogs. These days, only the
best of the best get venture backing. "Survival of the
fittest" is better guidance. --T.T.L.
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