Heesen addresses Feb. 15 meeting

February 15, 2005

Mark Heesen, president of the National Venture Capital Association, provided a briefing of the venture capital market during the last year. The most recent 11 quarters show a stable and conservative level of investment in the $4-6 billion range. Mark feels this represents the "right" amount, versus the extremely high levels evident before the bubble in the early 2000s.

Life Sciences has seen a dramatic increase in activity, accounting for 29% of investment versus 17% in 1998. IT has shows continued interest, growing from 53% to 56% last year. Communications investing is down, and most in the industry do not see it rebounding soon.

Mark feels the next two years will see an increase in see and early stage money, due to the cyclical nature of the industry. After the bubble, venture capitalists divested those companies that couldn't make it. Others became later stage deals and received expansion investment. Now that these companies are mature, start-ups will be sought for development. "It will still be hard to find money," says Mark, "but it's a good time to be an entrepreneur."

Last year, there were 92 venture-backed IPOs, in line with 1997-98 (prior to the bubble), and representative of all sectors. The exit market is good, and post-IPO performance looks strong. Of the 92 companies, most were funded before the bubble. "These companies will probably be stronger because of having to live through the bubble," Mark feels.

Mergers & acquisitions are also stronger in 2004, after having dropped precipitously in 2001. And since one-third of these reported deals were at >4x exit levels, Mark says "all parties were happy."

Overall, Mark feels we are in a very good period for both venture capitalists and entrepreneurs. "The venture capital process has to remain disciplined, and stay focused on known technology," Mark stresses. "So I say to you - don't mess it up. Let's not repeat history."