>or if your in cash wait for a better time.
Mark,
I've invested in some VC funds...and so far I've been getting some triple digit returns.
I'm just a tired investor...who wants to lay on the beach, and dream of 18 year old girls.;-)
>The stock market may be taking a hit, but it hasn't yet hurt financing for startups.
Venture capitalists poured a record $22.68 billion of new cash into start-up companies in the first quarter, despite a rout in technology stocks beginning in mid-March, according to a survey by the National Venture Capital Association scheduled to be released Thursday.
The figure beats the torrid pace of the fourth quarter, when $21 billion was invested in start-ups by venture-capital funds, according to the NVCA, and dwarfs the $6.16 billion invested by venture funds in the first three months of 1999. The number of companies being funded doubled from a year earlier to hit a record 1,557 in the first quarter, the organization said.
To be sure, the rate of growth does appear to have slowed in the first few months of the year compared with the rapid rate of expansion in new investments seen in the final months of last year. But venture capitalists say that it is typical for the dollar volume of start-up financing to start off more slowly in the first few months of the year, then accelerate later on.
"So far at least, we're not seeing any signs of a slowdown in venture funding in response to what's been happening in the stock market," says John Taylor, head of research for the Washington-based group. "These are investors with very, very long time horizons."
They also have a higher-than-average appetite and tolerance for risk. Even as fears of higher interest rates buffet stockmarket investors, venture capitalists continue their eager, if more selective, quest for new investment opportunities.
"We're all sharpening our pencils a bit, and trying to make sure that we're not throwing money into dumb things," says Robert Greene, a managing partner at New York's Flatiron Partners. "But there are lots of areas, like Internet and telecoms infrastructure, that are great, and still need a lot of capital."
Indeed, the NVCA calculates that in the first quarter of this year alone, 17 companies raised $100 million or more in a single venture-capital financing round. That compares with 44 firms in all of last year, and a mere six in 1998. The organization believes that is because start-up companies need to establish a leading market position earlier in their life cycles, and because it takes more cash to do so. The growing number of telecommunications companies -- which need proportionately more cash at an earlier stage to build their systems -- also contributes to this.
Luckily for these companies, venture capitalists have a lot of money to invest these days. Billion-dollar funds have become routine on Silicon Valley's Sand Hill Road, home to blue-chip venture-capital firms like Benchmark Capital, which last fall raised $1 billion from limited partners, including many large pension funds. Moreover, these days, traditional buyout funds and small merchant banks have also gotten into the game.
The figures include venture funding by members and nonmembers of the NVCA. (The NVCA calculates that its data captures as much as 95% of all venture-capital transactions.) The data exclude the earliest-stage investing provided by individuals known as "angel" investors, as well as later-stage buyout financing by private equity firms.
"The number of new projects available to be funded don't seem to be slowing down, nor do the deals," says Robert Kagle, a founder and general partner of Benchmark. "The one thing that has changed and that will continue to be more uncertain is what kind of exit strategy we use."
In the past few years, venture investors have been able to turn to the stock markets for substantial and rapid returns on their capital. But that financing window has largely closed: Only a few of the many initial public offerings scheduled to take place this spring are likely to be priced, investment bankers agree.
"This will be a year where we see a lot of mergers among private companies; a lot of consolidation rather than a lot of IPOs," says Robert Higgins, a managing partner of Boston-based Highland Capital. "That's going to be a bigger part of the financing picture."
In recent months, buyout or acquisition funding by venture-capital firms has shrunk to a tiny percentage of total investments. In 1998, for instance, buyout funding totaled $2.1 billion of the $19.39 billion invested by venture firms, according to the NVCA. Last year, that figure was only $2.02 billion of the $50.72 billion in start-up-related financing.
In one area, however, venture capitalists expect their world to mirror that of the public markets. Valuations, they say, already are shrinking, and some sectors of the market, like Internet retailers, have fallen out of favor among private investors just as they have on the stock market.
Mr. Kagle, for one, figures that is good news for the industry. For one thing, there could be more opportunities to invest at what he deems sensible valuations. For another, with the IPO market in limbo, investors and entrepreneurs alike will pay closer attention to their business plan rather than their marketing efforts.
"When money grows on trees, people are indiscriminate in investing," he says. "Now, we're going to have to look for things like inventiveness, resourcefulness and prudence."
Right now, at least, venture capitalists don't envision any problem finding limited partners to invest in their funds. Returns that have climbed into the triple digits in the last few years mean that many top venture firms trying to raise $500 million to $1 billion in new capital often end up with five to six times as much money as they want -- or need.
"These folks have a long-term approach, and keep only a small part of their assets in this type of investment," says Steven Lazarus, managing director of Arch Ventures LP, a Chicago venture firm now raising its fifth fund. "There's no change in the way things work: you've always been investing in the teeth of uncertainty in this game." |
