Reality Check

What happened with venture capital in the first quarter of 2004?
2 min read
Opinions expressed by Entrepreneur contributors are their own.

Venture capital stayed on course in the first quarter of 2004, according to the MoneyTree Survey. Investments reached $4.6 billion, comfortably in the mid-range of the levels seen in the past year and a half. And a total of 126 companies in the startup and early stages of development received their first round of venture capital-just about the average number over the previous four quarters.

That kind of stability doesn't mean it's any easier for first-timers. As the chart below shows, the number of formative-stage companies attracting venture capital for the first time is at a nine-year low despite anecdotal industry buzz of a resurgence. Further, they account for a smaller percentage of all companies getting venture backing. In part, this is due to the extraordinarily large number of companies that were initially funded in 1999 and 2000. As these companies have grown toward maturity, they have required additional rounds of funding and more of the venture capitalists' time, leaving fewer resources devoted to exploring new deals.

On the other hand, the fact is that the rules have changed, probably permanently. A more disciplined, methodical approach has been reinstituted. Handshakes over ideas scrawled on cocktail napkins have been replaced by full-blown business plans, protracted due diligence and third-party validation before the first dollar of venture capital becomes operating capital. Most venture capitalists and some entrepreneurs consider this a positive shift. Companies that emerge from this process are likely to be stronger and more successful over the long term. And after all, creating sustainable success is what starting a business should be all about.

Startup/Seed & Early Stage 1st Sequence Financing

Kirk Walden is the national director of venture capital research for PricewaterhouseCoopers.

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