|
Entrepreneurs are living a charmed life when it comes to getting capital. According to two recent surveys of first-quarter financing, money has
never flowed more freely from the palms of venture capitalists into the bank accounts of startups, with new deals surging to a record. What makes
such news all the more surprising is that the recent market downturn doesn't seem to have stanched the flow -- at least yet.
PricewaterhouseCoopers PLC, the accounting and consulting firm, says in a survey released on Monday, May 15, that venture-capital funding reach an
all-time high of $17.22 billion in the first quarter, more than quadrupling the first-quarter figure of $4.3 billion in 1999. A survey put out by
the National Venture Capital Assn. earlier this month, which uses a different gauge, pegged the figure at $22.6 billion, up 266% from the $6.2
billion figure for the first quarter of 1999.
Amazingly, neither study saw any letup in venture funding at the end of the quarter, when the Nasdaq began its dizzying drop. "The momentum
continues despite the recent downturn of the stock market," says Tracy Lefteroff, managing partner of the U.S. Venture Capital Practice at
PricewaterhouseCoopers. "As Nasdaq fluctuations have shocked Wall Street near the end of the first quarter, venture capitalists around the country
continued to invest at unprecedented levels."
MONEY FLOOD. The slaughter among technology stocks -- the Nasdaq composite index has dropped around 30.5% in the two months since Mar. 1 --
should have had a stifling effect on venture capital spending. That's because the lion's share of venture money goes toward companies that are
expected to go public in the near future. If the market goes down, venture capitalist have a harder time cashing out, which tends to cool their
ardor.
This time, the VCs don't seem to have noticed. That's probably because the supply of money flowing toward the VC funds from investors doesn't seem
to be ending. "The VC firms have a tremendous amount of money under management that they need to invest," says Kirk Walden, the national director
of venture capital research for PricewaterhouseCoopers. "The institutional guys love that kind of return and keep throwing money at them."
The supply of entrepreneurs doesn't seem to be getting any smaller either. According to the PricewaterhouseCoopers survey, a total of 1,423
companies received VC money in the first quarter of this year, nearly double the number that were funded in the same quarter last year. Perhaps the
biggest surprise was that on a regional basis, Silicon Valley was eclipsed as the growth leader in venture funding by five other regions --Georgia,
Illinois, New England, the New York metropolitan area, and Texas. Nevertheless, the Valley had by far the biggest bite of the pie -- a total of
$6.1 billion, according to PricewaterhouseCoopers.
Despite all the good news, beware the Ides of the Second Quarter. The market didn't engage its tailspin until late March, far too early for most
venture capitalists to throttle back on spending. "It's not like we respond to the ticker on an hourly basis," says Dan Nova, a managing general
partner for Highland Capital Partners. "I definitely have seen a decrease in activity in April and early May." So next quarter may not set a new
record.
By
Sam Jaffe
in New York
|
