The State of play in USA VC 2006

The SME and Early Stage marketplace is well placed in the Venture Capital Stakes according to Mark Heesen, President of the USA National Venture Capital Association, who spoke at the launch of DEMO 2006.

In the capital raising rounds of 1999 – 2001, $203 billion was raised. Funds on average were $1B +, and the focus was to invest large amounts of capital in each deal. After the ‘dot.com’ crash, this did not bode well for early stage companies.

Currently we are at the end of the latest capital raising cycle of the VC Industry, where an estimated $68b will be raised by the end of 2006. 2004 - $17b, 2005 $25b and 2006 $26b. The average fund is no longer $1b, but now $300m, which also bodes well for early stage companies. In 2005, there was a marked increase in 1st time funding to early stage companies.

VCs are investing in:
Telecommunication plays, which have been in the doldrums since the ‘dot.com’ crash, have shown life again, with 63% of investment being made in wireless companies, and mobile phone services looking up.

Internet dependent companies (companies that use the internet as a major source of their business) accounted for 13% of all VC Investment, with 1/3 of the investments being 1st time VC Backed Funds.

Many companies are not focusing on VC, but building their Companies with a view to vending their businesses into Ebay, Yahoo, Google, Quest and others who are looking at acquiring. This is excellent for early stage marketplace, as it creates serial entrepreneurs with capital to invest in their next venture.

The lifecycle of investment has been from Hardware to Software to Corporate IT, with the current trend being Consumer IT, such as social networking, blogs, creation of groups with similar interests and the simplification of ways to find items of interest.

There has been a convergence of IT and life sciences, with an increased activity in medical devices.

Corporate compliance and risk management is of interest because of the ‘Sarbannes Oxley Legislation’. Compliance and risk mitigation has been a major factor in companies not wanting to IPO, but rather stay private, which also gives them the advantage of stealth – acting under the radar of competitors.

Funds such as Sequoia Capital who invested in Google, Oracle, Cisco and others, often do not disclose who they are investing in, as they would rather the company develop under the radar of potential acquirers and competition. Funds such as these focus on building great companies as opposed to focusing on the best way to exit. Although they are a successful huge fund, it is not uncommon for them to invest $100k - $1m in a start
up. (If you are looking for funding in the USA , be prepared to move your head office and business to the town of the VC investing)

The aging population has been a focus with a view to “Simplification”. Making things easy to use. An interesting observation is that China is now the “oldest” it has ever been in respect to the age of population.

Generally, there is money being liberally invested in all areas.

Ivan Kaye from BSI said that Australia is coming onto the radar of VC in the USA, and if you have great technology that has a point of difference, you should seriously look at investigating the US market.