There may be no better time than the present to be an entrepreneur in the
United States. Start-up companies received a record $7.7 billion in ventu=
re
capital investments during the second quarter of 1999, nearly double the
previous record of $4.3 billion set in the first quarter, according to th=
e
professional services firm PricewaterhouseCoopers.
The $12 billion that venture capitalists showered on entrepreneurs during
the first six months of the year represents a 62 percent increase over th=
e
same period a year ago, the firm said. ``These are the good old days,'' s=
aid
Kirk Walden, national director of venture capital research for
PricewaterhouseCoopers, which publishes the Money Tree Survey. ``Any
entrepreneur with a technology idea and a good business plan should be ab=
le
to get funding.'' Indeed, the number of companies that received venture
capital investments during the second quarter rose 30 percent to 992, up
from 763 during the same three-month period a year earlier. And the avera=
ge
size of an investment rose 57 percent to $7.4 million, compared to $4.9
million in the second quarter of 1998.
Walden said the striking increase in the amounts of money flowing from
venture capitalists to start-up companies ``forces me to conclude that
venture capitalism is now an integral part of the U.S. economy.'' Morever=
,
Walden predicted that the broader distribution of investment dollars will
ultimately result in increased innovation and productivity because
technology will be allowed to move forward at a faster rate.
Venture capitalists raise money from a variety of investors and then
reinvest the money in fledgling businesses. The venture capitalist firms
generally receive low-cost stock in return for their investment.
Should the start-up company stay afloat and eventually complete a success=
ful
initial public offering of its stock, the shares become much more valuabl=
e
and the venture capitalists see a huge return on their investment. This
formula has been particularly successful in recent years, as venture
capitalists have helped numerous new Internet businesses survive until th=
ey
can raise additional money through an IPO. So experts said it's hardly a
coincidence that start-up Internet companies received about half of the
record second quarter bounty, or $3.8 billion. Overall, technology compan=
ies
received $6.9 billion in the second quarter, or 90 percent of the total
amount distributed.
Jesse Reyes, managing director of Venture Economics, a Newark, N.J., firm
that tracks venture capital trends, said large corporations have contribu=
ted
to the surge in overall venture capital investing by jumping into the
spending spree. ``It's the dot-com factor,'' he said. ``No one wants to b=
e
left out.'' In the past, venture capital firms were the primary investors=
in
start-up companies, and the firms did so for the sole purpose of reaping
returns on their investments, Reyes explained. But large corporations are
now getting into the act -- especially in the burgeoning online world -- =
for
strategic rather than financial purposes, he said. Large telecommunicatio=
ns
and cable companies, for example, have been pouring money into Internet
start-ups to gain a stronger foothold on the Web.
PricewaterhouseCoopers' survey found that the investment largesse is find=
ing
its way across the country. Companies located in Silicon Valley attracted
the most money during the record-breaking second quarter, receiving $2.7
billion. New England-based companies followed with $1.1 billion, and the =
New
York metropolitan area, the Los Angeles/Orange County region and the
Southeast each received more than $500 million. John Barry, a general
partner with Prospect Street Ventures, a New York venture capital firm th=
at
invests in information technology companies, said Silicon Valley will lik=
ely
remain the focal point for venture capital spending.
But other geographic regions are starting to attract more money as the la=
rge
venture capital firms realize that Internet companies are sprouting up al=
l
over the country, Barry said, noting that one-third of the Internet
companies that completed IPOs during the first six months of 1999 are
located in the New York metropolitan area.
Tushar J. Mehta
email: [email protected]
voicemail: (206) 405-2335