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Entrepreneurs
polish up your
PowerPoint presentations
and practice your
pitches, because the
venture capital purse
strings may be starting
to loosen up.
The venture capital
environment in the
United States looks
brighter for 2003,
according to a survey of
74 venture capital
companies located in 23
states. The study
was conducted by Dee
Power and Brian Hill,
authors of "Inside
Secrets To Venture
Capital," and
"Attracting Capital
From Angels," John
Wiley & Sons,
publisher.
2002 About The Same
As 2001
The venture capitalists
were asked if the
environment for
entrepreneurs looking
for early stage capital
today is better or worse
than 12 months ago.
The VCs were asked to
rate the environment
from 1 to 5, 1 - being
much worse, 5 - being
much better.
The average rating was
2.8, about the same.
Rating
Percent VCS responding
1
4%
2
37%
3
33%
4
25%
5
1%
The number of
entrepreneurs looking
for venture capital has
fallen again for the
second year.
However the quality of
the entrepreneurs'
business plans the
venture capitalists did
receive, has
substantially improved
for the second year as
well, according to the
VCs.
A Brighter Outlook
for 2003
When asked if the next
twelve months would be
better or worse than the
current environment, 60%
of the VCs said it would
be better. Again the VCs
were asked to rate the
environment from 1 to 5,
1 -
being much worse, 5 --
being much better. The
average rating was 3.6.
Rating
Percent VCS responding
1
0%
2
6%
3
34%
4
54%
5
6%
The three reasons most
often given for the
optimism were in order:
1. Overwhelmingly in
first place -
Improvement in the
economy and equity
markets
2. There is money
available to invest
3. IPO markets and
options for potential
liquidity are improving.
Followed closely by
4. Valuations are more
realistic
4. Portfolio triage is
over
4. Capital Spending is
up
Venture Capitalists
Comments
"I believe that the
outlook will be improved
12 months
from now in that the
economy will be looking
brighter and
the VCs will be more
anxious to deploy some
of the capital
that is burning a hole
in their collective
pockets."
"I believe the
economy is turning
around and there is a
lot of capital on the
sidelines waiting to be
placed into
good opportunities."
"NASDAQ will
improve"
Other reasons given
were:
Can't get any worse
Fly-by-night companies
are gone
The negative venture
capitalists blamed their
pessimism on the economy
not improving fast
enough and the need to
focus on their portfolio
companies. Only
two VCs mentioned
terrorism or war as a
factor.
There were some
geographic variances in
the responses. VCs
in the Pacific Northwest
were the most optimistic
with a rating of 4.2,
while New York VCs were
the least optimistic
with a rating of 3.3,
but every region
believed that the
climate for
entrepreneurs looking
for capital would
improve.
Pacific Northwest
4.2
Southwest
3.7
Midwest
3.7
California
3.5
South
3.5
East
3.5
New York
3.3
Overall the trend for
the last few years has
been upward. VCs
rated the environment in
2001 as worse than 2000
with an average rating
of 1.9. 2002
saw an improvement to
2.8. And the
outlook for 2003 is 3.6,
a substantial
improvement.
2001
2002
2003
1.9
2.8
3.6
Now Is The Time
For entrepreneurs that
have been waiting on the
sidelines to start their
search for venture
capital, 2003 may be the
best opportunity of the
last few years.
There is less
competition and the
attitude of venture
capitalists towards
funding early stage
companies is more
favorable.
Additional Analysis
Additional Analysis will
be available throughout
January and will cover:
What do venture
capitalists think are
the most critical
mistakes entrepreneurs
make in their business
plan?
What is the one
characteristic VCs think
an entrepreneur must
have to be successful?
What advice do venture
capitalists give to
entrepreneurs looking
for early stage capital?
A referral by a trusted
associate is accepted as
the best way for an
entrepreneur to be
introduced to a venture
capital firm. What
other ways do VCs
recommend for an
entrepreneur?
The above results will
be available on a
regional basis as well.
The regions include:
Pacific Northwest
Southwest
Midwest
California
South
East
New York
Dee Power and Brian Hill
are the authors of
"Attracting Capital
From Angels: How Their
Money and Their
Experience Can Help You
Build a Successful
Company," 2002,
John Wiley & Sons,
and "Inside Secrets
To Venture
Capital," 2001,
John Wiley & Sons,
available in bookstores
nationwide and online
booksellers such
as amazon.com and
www.capital-connection.com.
They are also the
founders of Profit
Dynamics Inc. located in
Fountain Hills Arizona
and of http://www.capital-connection.com
The Entrepreneurs
Resource For Finance.
They can be reached at
business@capital-connection.com.
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