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Strategies & Market Trends : Sharck Soup -- Ignore unavailable to you. Want to Upgrade?

To: puborectalis who wrote (33245)	8/20/2001 6:57:14 PM
From: puborectalis	Respond to of 37746

VCs: Tech-investing gloom to clear By Dawn Kawamoto Staff Writer, CNET News.com August 20, 2001, 3:10 p.m. PT While it sounds like wishful thinking, venture capitalists say for the first time since January they expect the technology investing climate to stabilize and set the stage for more investment activity, according to a survey released Monday. The survey's nowhere-to-go-but-up finding came soon after two closely watched industry reports said venture capital commitments fell by more than 65 percent in the second quarter from the same period the year before. One of the reports also said venture capital investors were looking for fund managers who were experienced in business well before the Internet boom and bust, a development that may augur the shakeout of less experienced managers that the venture industry's old hands have expected for months. That concern was also echoed in Monday's Silicon Valley and East Coast Venture Capital Confidence Survey by consulting company Deloitte & Touche. According to the survey, 78 percent of respondents expect up to a third of existing venture capital companies to fail. At the same time, however, Monday's report suggested that after a brutal half-year in which many of their technology portfolio companies--especially dot-com and e-commerce start-ups--went under, venture capitalists believe the worst is behind them. Nearly 90 percent of venture capitalists said they believe that now is a good time to invest in the technology sector, according to the survey. But David Clark, a partner with Deloitte & Touche's Corporate Finance Group in New York, said such confidence comes only after a severe period of "triage" performed by venture capitalists on their portfolio companies. Patience as a virtue "The good news is the bad news is out there," Clark said. "People are coming clean because they have to." "I have heard people suggest that they are back to an investment model that anticipates 3- to 5- and 5- to 7-year holding times" for start-ups, Clark added. "People are not expecting that they will be able to get out of their investments in 12 to 18 months." "People are returning to investment parameters that defined venture capital as a lengthy and patient investment pattern," Clark noted, because venture capitalists now have to be "very careful how they present their exit expectations to their clients." Investors in venture funds will likely hear over the short term that the best option for cashing in on their start-ups' stakes will be through mergers and acquisitions not initial public offerings. Nearly 93 percent of the survey's respondents said mergers and acquisitions deals will dominate portfolio exits for the next six months. The survey also found that venture capitalists, while regaining confidence, are more restrained on the front-end of investments, reporting they are less willing to write big checks to risky start-ups. Offsetting some of the survey's optimism was the finding that 72 percent of respondents said "down rounds" would continue and that valuations in "follow on" rounds were likely to decline over the next six months. Down rounds are financing rounds in which start-ups receive less from venture sources than they did in earlier rounds. Follow on rounds are subsequent investment rounds, their total funding influenced by "valuation," or the worth of a company as negotiated by investors and entrepreneurs. Venture capitalists responding to the survey also said they saw a continuation of the high mortality rate for troubled venture-backed companies. Story Copyright © 2001 Reuters Limited. All rights reserved.