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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."
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.
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Tracy T. Lefteroff, global managing partner, Venture Capital Practice, PricewaterhouseCoopers