Reality Check

If you're looking for venture capital funding, you'll need more than just a new idea to get it.

In the first quarter of 2001,early-stage, pre-IPO companies raised less money than they havesince the second quarter of 1999. According to the"PricewaterhouseCoopers MoneyTree Survey in Partnership WithVentureOne," total equity financings in venture-backedcompanies fell to $10.1 billion in the first quarter of 2001, a 40percent drop from the last quarter of 2000. That represents thesteepest quarter-to-quarter drop in history in terms of absolutedollars.

What does that mean for companies seekingfinancing? The number of businesses receiving early-stage fundingdropped from 453 in fourth quarter 2000 to 235 in first quarter2001, a 48 percent decline. Yet the median dollar amount eachbusiness received fell only 13 percent, from $10.9 million to $9.5million per company (see below for first quarter investments forthe last three years). So while it's more difficult forcompanies to get backing, those that do, get plenty of it to growrapidly. Plus, industry sectors like networking,telecommunications, consumer and business services and softwarecontinue to attract huge amounts of funding compared to mid-1990slevels.

The dramatic drop-off in investingdoesn't necessarily indicate a significant economic downturn.Setting aside the Internet gold rush of the last two years, thecurrent climate is still more aggressive than historical norms andwill likely remain that way. The bottom line is that entrepreneursneed more than just a new idea to get funding.

-Tracy T. Lefterof,Global Managing Partner,
Venture Capital Practice, PricewaterhouseCoopers
Median AmountInvested per Round of
Equity Financing ($M)
Equity financings include cashinvestments by professional venture capital
firms, corporations, private placement and individuals intocompanies that
have received at least one round of professional venturecapital.

SOURCE: "PricewatehouseCoopersMoney Tree Survey
in Partnership with VentureOne"

Contact Sources

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