Oct. 12, 2005--U.S. and European trade officials fear that mature companies are soaking up venture capital, leaving little for start-ups that provide a critical resource for growing economies.

Based on meetings with members of the venture capital industry, a working group of officials from the Department of Commerce and the European Commission concluded that early-stage companies and entrepreneurs are not receiving the investment capital needed to launch. The group published a report last week calling for government investment in established venture funds to correct what they perceive as a "fundamental market failure in early stage financing."

The Department of Commerce commissioned a study by analysts at VentureOne, which found that between 1992 and 2004, early stage companies received only $1 million on average versus $3 million to $5 million for later stage ventures. The data is based on 11,600 companies that received venture investments during this time period. Of those, almost half are still in business and have received additional rounds of funding worth $8 million on average.

But Kirk Walden, director of venture capital research for PricewaterhouseCoopers, said the trend toward funding of later stage companies represents a return to traditional patterns of venture financing.

"It really depends on where you put your stake in the ground and start looking at data," said Walden. "If your benchmark for venture investing is 1999 or 2000, then you're looking at a market failure," said Walden. "The way I see it, we're just getting back to business as usual."

Despite the shrinking amount of venture capital flowing toward start-ups, other financing for startups exists, such as angel funding.