Jun. 26–When the dot-com bubble burst two years ago, Sacramento entrepreneur Tom Tamarkin couldn’t raise a dime from venture capitalists, let alone get them to return his telephone calls.
Today, Tamarkin’s phone is ringing again. “The capital markets are starting to be a little more fluid,” said Tamarkin, the founder of USCL Corp., which has developed a high-tech home energy management system.
One reason for the cautious optimism: Pension fund giants like the California Public Employees’ Retirement System want to dive back into the private equity market after sidelining billions of investment dollars following the dot-com crash.
Indeed, officials at CalPERS and the California State Teachers’ Retirement System said the environment is ripe to step up venture capital investments.
“Company valuations are very low. That means there are good buying opportunities,” said Christopher Ailman, chief investment officer of CalSTRS, a $100 billion pension fund.
The private equity market, which saw venture capital investments hit a five-year low during the first quarter of 2003, has bottomed out and signs abound that deals are on the rise, according to investment executives.
“We really started to see it pick up in the last few months,” said Richard Hayes, senior investment officer of CalPERS’ private equity program. “We have a huge amount of money to be invested.”
In the next three to five years, CalPERS, the nation’s largest pension fund with $138 billion in assets, plans to make up to $8.8 billion in private equity investments. That includes venture capital and corporate buyout deals. CalSTRS, the No. 3 pension fund, has more than $4 billion available.
Still, times aren’t exactly easy for startups, said Jon Gregory, chief executive of the Golden State Capital Network, a Chico-based group that helps match entrepreneurs with venture capitalists and wealthy angel investors.
But that hasn’t fazed entrepreneurs who will flock to Golden State’s venture capital conference, being held today and Friday in Oakland. “There are definitely deals getting done. The purse strings are going to be loosening up,” Gregory said.
Nationally, experts say an enormous pot of money — estimated at $80 billion — is waiting in the wings. They predict the flow of investment dollars will steadily increase this summer and pick up steam by year’s end.
“Entrepreneurs are active and moving forward executing their business plans,” said Roger Akers, managing partner of Akers Capital, a Fair Oaks venture capital fund. “Good business plans are going to be funded. People’s confidence is coming back.”
Because of a sluggish economy, analysts don’t expect venture capital investments to surge as they did during the Internet frenzy of the late 1990s.
During the dot-com boom, VC investments soared from $7.6 billion in 1995 to a record $106.1 billion by 2000, according to a survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. During the Internet gold rush, it wasn’t uncommon for deals to be wrapped up in a matter of days.
After the bubble burst, venture investments dwindled, as VCs focused on shoring up existing companies. Last year, VC investments tumbled to $21.2 billion and money virtually dried up for new ventures.
Since the peak three years ago, investors have concentrated on troubled companies — either righting floundering ventures or shutting them down. In the meantime, some entrepreneurs — often depending on their own savings or money from friends or family members — plugged away to turn their promising ideas into products.
“We’re seeing a renaissance in terms of money going to companies. That’s promising,” said John Taylor, vice president of research for the National Venture Capital Association, an Arlington, Va., trade group.
USCL’s Tamarkin, for instance, spent the past two years and more than $500,000 in private investor money and personal savings to develop a wireless home energy management system designed to cut consumers’ natural gas and electricity bills.
Now Tamarkin just needs to attract $2 million in venture capital funding this summer for the product to hit store shelves by winter.
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(c) 2003, The Sacramento Bee, Calif. Distributed by Knight Ridder/Tribune Business News.
