Jul. 29–Financing for local start-up companies rebounded last quarter from a five-year low, according to two separate surveys on venture capital.<\/p>\n
The upswing mirrored a tentative but encouraging resumption of VC funding nationwide, but few experts were ready to declare the long slump in venture financing over.<\/p>\n
“We need a few more quarters,” said Todd Dagres, a general partner at Battery Ventures, a fund that finances technology companies.<\/p>\n
The first report, the Money Tree survey published by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association, found that 15 early-stage companies headquartered in Orange County raised $118.8 million in venture-capital financing during the second quarter.<\/p>\n
That was almost double the $60.1 million that 12 companies managed to raise in the first quarter — the worst since 1998 — and a 25 percent improvement over the $94.2 million that 12 companies raised during the comparable quarter last year, according to PwC and its partners.<\/p>\n
The second report, published by Ernst & Young and VentureOne, reached an almost identical conclusion. It found that 13 early-stage O.C. companies raised $132 million in the second quarter.<\/p>\n
Again, that was almost double the $69.1 million that nine companies managed to raise in the first quarter, E&Y, VentureOne estimated.<\/p>\n
The local improvement was an emphatic element of a smaller upturn in VC funding across the nation.<\/p>\n
Nationwide, VC investing rose 5 percent to $4.3 billion in the quarter, according to PwC and its partners, the first increase since 2001 but well below the record $28.6 billion for the first quarter of 2000.<\/p>\n
(E&Y and VentureOne said the national number rose 14 percent to $4 billion.)<\/p>\n
One reason for the upturn: The dramatic rebound in Wall Street stock prices since mid-March has increased confidence among venture capitalists that the companies they have financed will be able to go public, allowing the VCs to cash out.<\/p>\n
But the question of business capital expenditure continues to cast a shadow on the market.<\/p>\n
Corporate spending is crucial because most start-ups make products or sell services that they market to other businesses.<\/p>\n
When corporate America isn’t buying, start-ups’ sales don’t grow and their ability to attract additional financing — or go public — diminishes dramatically.<\/p>\n
Although the national reports that track corporate capital expenditure continue to suggest companies are still trying to efficiently utilize the plants, equipment and technology they bought in the late 1990s, the VC community says it detects a subtle pickup, measurable in small increases in revenue at the start-ups they’ve funded.<\/p>\n
Even so, Dagres says it “remains a fairly difficult environment for companies trying to extract money from corporate America.”<\/p>\n
For VCs, the two most popular industries in the second quarter were biotechnology and medical devices, which accounted for a quarter of the $4.3 billion raised nationwide, and almost half of the $118.8 million raised locally.<\/p>\n
Such companies are often still years away from the breakthroughs and regulatory approvals that they’ll need to sell their products. But that’s fine with the VCs, who are funding companies today that they don’t hope to sell to the public before 2007.<\/p>\n
“VCs are not looking at what’s hot today,” said Jesse Reyes, vice president of Venture Economics. “They’re looking at what’s going to be hot in six or seven years down the road.”<\/p>\n
Local executives who have been through the funding process confirmed that the environment, while improving, is still tough.<\/p>\n
“It took us a lot of time and effort to find the right VC,” said Hossam Salib, vice president of marketing and business development at Aktino Inc., an Irvine-based supplier of telecommunications products that raised $8 million in initial funding last quarter.<\/p>\n
“The due diligence is triple what you saw a few years ago.”<\/p>\n
But if the scrutiny has been stepped up, the expectations have been reeled in somewhat, Salib said.<\/p>\n
Companies don’t have to be coming up with a router better than Cisco’s or a switch better than Lucent’s. Instead, VCs are looking for companies with simple products that provide immediate value to their customers and can give VCs a quick return on their investment.<\/p>\n
Expectations about what constitutes an acceptable return have been scaled back as well, Salib said.<\/p>\n
“They’re happy to make 10 times their investment,” he said, “instead of 100.”<\/p>\n
—–<\/p>\n
To see more of The Orange County Register, or to subscribe to the newspaper, go to http:\/\/www.ocregister.com<\/p>\n
(c) 2003, The Orange County Register, Calif. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n","protected":false},"excerpt":{"rendered":"
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