Now that the level of investing has stabilized, how should
entrepreneurs approach venture capitalists? With sleeves rolled up
and potential customers in hand. According to the "MoneyTree
Survey" from PricewaterhouseCoopers, Thomson Venture Economics
and the National Venture Capital Association (NVCA), total VC
investment in 2003 was $18.2 billion, reflecting a steady pattern
of investing of $4.2 billion to $4.9 billion every quarter. A
special analysis prepared exclusively for Entrepreneur shows
that of a total of 2,200 companies getting VC funding, 515 startup
and early stage companies got their first round of funding in
2003-a marginal decline from 2002. On average, these companies
received $4.3 million each.
These figures are reason enough for first-time entrepreneurs to
be optimistic, but only if they're serious. Tom Siegel, general
partner of Shepherd Ventures, a San Diego firm with $50 million
under management, lays out the ideal criteria for first-time
financing: "What we look for is a completed product, customers
or revenue, or the imminence of them." Those are high hurdles,
but at the same time, the field has widened.
"Opportunities are in a variety of sectors," says Mark
Heesen, NVCA president. The "MoneyTree Survey" bears that
out. Technology companies continue to attract the most attention
and dollars. Software companies are perennial leaders, and for good
reason. "There is an enormous breadth of segments in
software," Seigel notes. "We see opportunities in
enterprise applications, data analytics, security storage, even
online gaming."
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The life sciences sector accounted for 20 percent of first-round
financings in 2003. Jim Healy, managing director of Sofinnova
Ventures, a Silicon Valley firm with $600 million under management,
sums up the trend: "There are strong fundamentals: an aging
demographic, growing expenditures on new drugs and an improved
regulatory environment."
The "MoneyTree Survey" also reports that media and
entertainment companies claimed nearly 10 percent of all first-time
financing. Further, industrial and energy-related companies, along
with consumer and business products companies, had strong showings
in 2003. So there are plenty of opportunities. And there's
plenty of venture capital-at least $50 billion-waiting to be
invested. In today's environment, a realistic entrepreneur will
recognize that an idea is not a business; it's a beginning.
Progress requires applying the three M's: management, market
and money. The successful entrepreneur will nail the first two
before seeking the third.
To view our 4th Annual VC 100, click here.
Tracy T. Lefteroff, global managing partner, Venture Capital
Practice, PricewaterhouseCoopers