20010903 \  Märkte & Trends \  General Venture Capital Market USA Update
General Venture Capital Market USA Update
By Philip Storey, Principal Consultant of
In 1990 US venture capital investment was $3.5 billion. By the end 1999 it had reached $103 billion.
However over the last 6 months, the situation has changed dramatically in both the USA and Europe. These days most VCs face a more prosaic process, that of deciding what to nurture and what to “kill”. A number of VCs simply have no new money to invest.
A large number of Internet and new economy incubators from China, US, Japan and Europe have disappeared - some of them fewer than six months old. In the US this year, VCs will be lucky to raise half of the $92.6 billion they attracted in 2000. In comparison, Europe will find it difficult to match the US $32 billion that was raised in 2000.
Much of the money that was poured into venture capital in early 2000 was invested into companies that never had any hope of profitability. Now many VCs are extremely cautious with the funds that they do have and take longer to come to any decisions, undertaking more thorough research and taking a more rigorous approach to the investment process.
The technological innovation that has provided much of the increase in productivity over the last decade could be stifled by a lack of capital into these markets. Capital investment in the “new economy “ has not yet hit bottom and may not do so until the end of 2001. Mergers and acquisitions have also become almost stagnant in comparison to 1999.
Many VCs have returned to invest in the “old economy” that they had started turning their backs on.
It is not all negative though. Good companies with a good sound business plan and realistic goals still have excellent chances of attracting investors. This is especially so in Europe, as the European VC community does not have as much negative equity as the American counterpart.
A small number of corporate VCs are still interested and are investing in the IT sector, especially DRT (Document Related Technologies). However, many have become more cautious and have started cutting back on their investments. These include Microsoft, Intel, Lucent and Nortel - to name but a few.
The once much sought after Telecommunication sector has suffered from lack of investment over the last few months. Existing investors have withdrawn gradually, share prices have dropped and recommendations from analysts have not been encouraging.
The Biotech industry tends to fluctuate and is being viewed by the VCs as being interesting but needs to be carefully considered, with only small investments currently being considered.  
A number of corporate and independent VCs appear to be alive and well, but others are looking for investments themselves in order to stay alive. Their focus is either in the “old economies” or on companies with developing technologies that are beneficial in their own right and synergistic with their other investments.   
It is most difficult these days for smaller relatively unknown companies to attract investments of any size. Too many “fingers have been burned” and most of the VCs are themselves suffering and often their own survival is threatened.
Companies looking for investment are recommended to turn to the professional advisers and consultants for guidance concerning their technologies, business plans and future migration into new business sectors.
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