The WSJ's StartupJournal features a post about the current state of the venture ecosystem and VCs appetite for more mature companies - those with established products/services, growing revenues and clear direction - Later-Staged Companies See More Venture Funds. This certainly isn't news but rather further confirmation of a trend that started soon after the melt-down in early 2000 when the adults regained control of the purse strings. This graph from the article pretty well illustrates what has gone on:
And the pundits and watchers have given a litany of reasons why this might be so -the punk IPO market, SOX, reduced enthusiasm for start-ups following the meltdown, huge overhang in VC coffers, Y2K pass over, bigger fund size (harder to move the needle with seed or early stage start-up investments), etc. And there is no reason to doubt that these factors have weighed on VC's investment proclivities. Perhaps the biggest change in the last 4 years is a renewed faith in their investments such that follow-on rounds are more common. At the depth of the meltdown I saw up close and personally that even respectable companies were unable to find additional financing from earlier stage investors.
That said, now seems to be like a pretty good time to be starting companies and seeking funding. The project I'm actively working on has already had a series of meetings with VCs who would not otherwise consider seed stage investments. And recently there was some talk about 'stealth' investments in very early stage companies by VCs - investments that they keep under wraps.
A couple of weeks ago in an article about quarterly report on VC investing, National Venture Capital Association president Mark Heeson espoused that a significant percentage of investment may go unheralded - Venture capital investment maintains steady pace:
But the recent surveys of venture capital investment may not be picking up on all the action occurring behind the scenes.
That's because more venture capital firms have been making ``stealth'' investments in startups, remaining quiet about their commitments until the company has a product to display.
For instance, about 10 percent of Advanced Technology Partners' recent investments haven't been disclosed because the money has been placed in stealth companies, said Wes Raffel, a general partner with the Palo Alto, Calif.-based firm.
Of course, if ATP's dealings were indicative of the entire ecosystem, it still wouldn't make much difference in the overall scheme of things. In 2004 $4.3 of total $21 B was placed in 1050+ deals. Seed and early-stage funding is about 20% of overall funds invested. At the current pace this year's financing will be above $20 B, continuing the pace of financing that has been in progress for the last 3 years. It is again a good time to be starting a firm that can take advantage of VC financing. And as always, it is a good time to be a VC.
Comments