2004 IS A Brighter Year For Venture Capital And Entrepreneurs

Entrepreneurs polish up your PowerPoint presentations and practice your pitches, because the venture capital purse strings are loosening up.

March 2, 2004 -- The venture capital environment in the United States looks brighter for 2004. Investors plan on putting their money where their mouth is, and intend to invest more in 2004 than they did in 2003, according to a survey of 75 venture capital companies located in 23 states. Those states include: Alabama, Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Massachusetts, Maryland, Michigan, Missouri, Mississippi, North Carolina, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Virginia, and Washington.

The geographic distribution of the venture capital companies who responded to the survey are primarily on the West Coast and in the East which reflects the physical location of the majority of venture capital firms. Fund size ranges from small regional firms to major national firms. Capital under management ranges from $40 million to $1.5 billion, the average being $390 million. Venture capital firms were queried by email and by fax. The study was conducted by Dee Power and Brian Hill, authors of Inside Secrets To Venture Capital, and Attracting Capital From Angels.

A Bright Outlook for 2004
Looking ahead, 84% of the venture capitalists thought the environment for entrepreneurs looking for early stage capital would be better in 2004 than 2003. The same question was asked a year ago, and only 60% of the venture capitalists thought the future would be an improvement.

Increased exit opportunities, combined with available money and a willingness to invest that money are the main reasons VCs give as an explanation to their optimism. Last year improvement in the economy and equity markets was overwhelming in first place as the most cited reason for improvement. In 2004 it falls to fourth place. It seems interest in early stage deals is increasing as well.

There were little geographic variances in the responses. VCs in the South were the most optimistic with a rating of 4.2, followed
by the Southwest at 4.1, but the East, Midwest, and West Coast all followed closely at 3.9.

Does Increased Optimism In The Venture Capital Community Result In Increased Investment?
Yes, if measured by the intention to invest. 70% of the venture capital firms plan on investing more in 2004 then they did in 2003. Only 6% of the venture capital firms planned on investing less in 2004 than in the previous year; and several of those qualified their answers by saying that they were at the end of a fund cycle. Overall the rating was 3.7 (1 - much less 5 much more)

               2004                                                           
Rate Percent VCs responding              
1                              5%                                       
2                              1%                                       
3                         24%                                       
4                         54%                                       
5                         16%
                                       

Activity Levels Rise After Falling for Two Years in A Row
Nationwide the number of entrepreneurs looking for venture capital in 2003 increased, breaking the trend of the previous two years of lessened activity. Contrary to the national results, the South saw a decreased number of entrepreneurs looking for venture capital and the East saw the number stay the same.

Does Geography Matter When Investing?
Yes, a bit. While each regions VCs planned on investing more in 2004, those in the East planned on increasing that level the most, while those in the Southwest planned on increasing the level the least.

Region                    Rating
East                         3.9
West Coast               3.8
South                         3.5
Midwest                    3.5
Southwest                    3.4

What Does This Mean for Entrepreneurs?
In 2003, the stage was set for improvement in the venture capital industry when the public equity markets rebounded so strongly. The VCs surveyed last year remained somewhat cautious about the future, however, given the fact many were still faced with ailing companies in their existing portfolio. Now these problems seemed to be resolved, and venture capital firms are stepping up their investment opportunities accordingly. The more robust IPO market and increased M&A activity are allowing VC firms to exit earlier investments and raise cash for new ones.

To sum up, in 2002, VCs thought the worst may be over for them, after an extremely difficult period in 2000-2001. In 2003 we saw their outlook turn positive, and now there is true reason for optimism if you are an entrepreneur: 7 out of 10 VC firms intend to invest more in the next 12 months.

Contact: Brian Hill or Dee Power
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About Dee Power and Brian Hill
Dee Power and Brian Hill are the authors of Overtime, 2003, a financial thriller novel Business Plan Basics 2003, Attracting Capital From Angels , Inside Secrets To Venture Capital

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.

Hill and Power are working on The Bestseller, Success Stories From Top Authors and the Editors, Agents, and Booksellers Behind Them Dearborn Trade, March 2005, and a second novel, Inside The Crescent Moon. They have several screenplays under consideration in Hollywood. Find out more about Hill and Power at http://www.BrianHillAndDeePower.com
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