Apr. 29–The average size of Central Texas venture capital investments during the first quarter fell by nearly half from the previous year, although the pace of investment remained constant,according to data released Monday.
Fourteen Austin companies raised $71 million during the first quarter of 2003, according to a survey by PricewaterhouseCoopers and venture trade groups. By comparison, 14 companies raised $123 million during the first quarter of 2002.
The amount of money raised was down 35 percent from the fourth quarter of 2002, when 15 companies raised $110 million.
“We won’t see significant increases until the markets and the economy start to turn around,” said Don Keller, managing partner at PricewaterhouseCoopers in Austin. “The good news is we’re approaching the point of stabilization.”
Nationally, venture capital investment also took a slide during the first quarter, falling 12 percent from the fourth quarter to $3.8 billion. The number of companies raising money fell to 623 from 726.
During the first quarter a year ago, 495 companies raised $5.1 billion. The total amount of venture capital invested in the United States has fallen by nearly half during the past two years.
Venture capitalists most likely will continue to hold back until demand for initial public offerings is rekindled. IPOs are crucial because they give investors a way to cash out of their investments, freeing them to make new ones.
“Until the IPO window reopens, we’re going to be in a holding pattern,” Keller said.
One explanation for the financing decline is that valuations of technology companies — or the price investors are willing to pay — have dropped precipitously.
Another reason for the dropoff is that many tech companies that required big investments — such as telecommunications providers and e-commerce ventures — have failed in the market and no longer interest venture capitalists.
In addition, the way investors are parceling out money to companies also has changed.
No longer are startups without revenue walking away with $50 million investments up front.
“In the past, venture capitalists would do large amounts of money in a single deal,” said Martin Neath, a general partner with venture capital firm Adams Capital in Austin. “Now you see investors providing enough money for 12 months, and the company has to meet milestones to get more.”
Neath said he thinks venture investing has bottomed out in Austin, but the first quarter remained difficult for companies seeking first-time financing.
Only two — Metreos Communications and an undisclosed consumer products company — raised initial investments during the quarter.
Still, early-stage companies fared better during the period than they did during the fourth quarter. Five early stage deals took in 27 percent of the total dollars invested during the first quarter, up from 8 percent in the fourth quarter.
Austin’s software industry got a big bounce in the first quarter, taking in 62 percent of investments. During the previous quarter, software companies received 2 percent.
AlterPoint Inc. was among those that scored.
The company, which makes software that handles network configuration, raised $2.5 million in the first quarter and plans to spend it judiciously.
“There’s nothing AlterPoint can do to make the economy grow faster, but we can control our spending,” chief executive Joe Corso said.
“You just spend wisely so you can be there when the economy starts to pick up.”
Semiconductor companies, which didn’t receive any money in the fourth quarter, landed 22 percent of the dollars during the most recent quarter.
“It’s refreshing to see a couple of semiconductor deals get funded, given that it’s one of the sweet spots in the Austin economy,” Keller said.
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(c) 2003, Austin American-Statesman, Texas. Distributed by Knight Ridder/Tribune Business News.
