August 23, 2005--Investors eagerly plowed money into new venture capital funds in the second quarter of 2005, according to a report released Monday.
VentureOne, a financial research unit of Dow Jones, found that venture capitalists raised $6.07 billion, an increase of over 160% from a year earlier, though well below levels reached between 1999 and 2001.
The higher funds are concentrated in a few top-tier firms, noted one analyst from PricewaterhouseCoopers, making access to that capital more difficult for startups looking for venture capital. Mark Heesen, president of the National Venture Capital Association, expected venture capitalists would direct their investments toward companies in the life sciences, information technology and energy fields.
"Venture capitalists are really looking at their traditional bread and butter industries, like biotech and medical devices," said Heesen, who noted that these fields were among the diminishing number of high growth markets that venture capitalists favor.
Within the tech sector, Heesen expected venture capitalists to shift their focus from corporate IT solutions to consumer products for global markets. And as oil prices soar, Heesen expected to see more investment into clean coal, alternative energy sources like fuel cells, and technology for extracting and refining petrochemicals.
But even within these selected fields, start-ups will vie for the attention of venture capitalists, said Kirk Walden, director of venture capital research for PricewaterhouseCoopers.
As fewer venture capitalists handle ever larger funds, Walden expects them to become increasingly selective. This trend favors companies with a track record of sales and earnings as well as prior venture financing.
As evidence, Walden cited the decreasing trend of deals with early stage companies. "In the first half of this year, there was a total of only 303 first-time entrepreneurs who received venture capital," said Walden. This is only 20 percent of all companies receiving venture investments. "You have to go all the way back to 1995 to find numbers that low."