Although investment in venture-capital firms has shriveled since 2000, venture activity in New England has held up better than in the country as a whole, according to a keynote speaker at the recent RITEC Venture 2002 conference.
Jeanne Lazarus Metzger, a vice president for the National Venture Capital Association, told entrepreneurs that although the picture for venture investing is bleak, there is a decent chance that things will warm up.
"Hopefully there will be a pickup in new investments later this year," Metzger told an audience of about 200 entrepreneurs June 13 at the Crowne Plaza Hotel in Warwick. She added that the recovery hinges on healthy public-equity markets and a pickup in technology investment by large companies.
Seifert Systems Invests in Energy Efficiency to Strengthen Operations
For manufacturers, energy is more than just another operating expense. It plays a critical role…
Learn More
Nationwide, money flowing into venture capital firms – from sources such as pension funds, endowments and institutional investors such as financial-services firms – has ebbed dramatically, plunging roughly 60 percent, from a record $105 billion in 2000 to $41 billion last year.
But fundraising by venture-capital firms in New England fell less sharply, from nearly $14 billion in the boom year of 2000 to slightly less than $10 billion last year. The region’s relative resilience could be a harbinger of future activity, Metzger said.
"New England has not dropped off as much as the rest of the nation, and that bodes well for the long-term vitality of this region," Metzger said.
Moreover, New England holds its own in venture-capital investment, accounting for 13 percent of overall U.S. investment. That ranks second behind the country’s venture-capital hotbed, Silicon Valley, but ahead of the New York City metropolitan area (9 percent) and Texas and Southern California (8 percent each).
That last factor could be a good sign. Indeed, Metzger said the downturn in venture-capital investment represents a healthy, natural pause in the market, as venture firms look to deploy the capital that flooded in between 1998 and 2000.
But a closer look reveals a disheartening trend: About 80 percent of venture financing in 2001 was in the form of follow-on deals, going to companies that already received an initial round of financing. That means that far less capital was made available to early stage startups last year – cause for concern for entrepreneurs hoping for an infusion of financing.
"I don’t think we’re ever going to see the same level of venture investment in terms of money," Metzger said. "But a recovery will mean a return to a healthy balance of follow-on investment and new investment."
