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Posts Tagged ‘Venture Capital’


Bad News for Small Business: VC Investments Decline

November 15th, 2012 ::

By Maria Valdez Haubrich

Recently, we posted here about the growth in angel capital investments. Now, there’s some not-so-good news for small businesses about venture capital. The most recent MoneyTree survey from PricewaterhouseCoopers and the National Venture Capital Association reports that in the third quarter of 2012, VC investments shrunk both in terms of overall dollars (down by 11 percent from the second quarter of 2012) and in terms of deal volume (down by 5 percent from the second quarter of 2012).

VC dollars and deals also declined year over year. What’s behind the shrinkage? PWC and the NCVA say that venture capitalists are exhibiting extreme caution with the capital they have available. Instead of making new investments, they’re focusing on the companies that are already in their portfolios. Compounding the problem, there are fewer new venture funds, which is cutting into the amount of capital that can be invested.

Of course, the bad news may not affect you if your small business is in an industry that finds it easier than average to attract venture capital. Here’s a closer look:

  • As of Q3 2012, software companies were still the most popular type of VC investment, accounting for $2.1 billion invested in 304 deals. (That’s still a 12 percent drop from Q2 2012, however).
  • Life sciences (which includes biotechnology and medical devices) investing increased in terms of dollars but declined in deal volume compared to Q2 2012.
  • Internet-specific investing (companies whose business model depends on the Internet, regardless of industry) declined by 12 percent in dollars and 8 percent in deal volume compared to Q2 2012.
  • The clean technology sector (alternative energy, pollution and recycling, power supplies and conservation) had a 20 percent decrease in dollars but a 2 percent increase in deal volume.
  • Financial services, healthcare services, business products and services, and retailing businesses saw increasing dollar amounts invested in Q3 compared to Q2.
  • In contrast, companies in the media and entertainment, semiconductors, telecommunications and IT services sectors all saw a decline.
  • Companies in the software, media and entertainment, and IT services industries received the most first-time rounds in Q3 2012.

Your industry isn’t the only thing that matters when you’re looking for VC investments. Where your business is located matters more than you might want to think. Over half (58 percent) of VC funding in Q3 2012 went to businesses in California, Massachusetts and New York.

Image by Flickr user Horia Varlan (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Venture Capital | No Comments »

Where Are VCs Investing Now?

February 14th, 2012 ::

By Karen Axelton

Facebook’s recent IPO may be getting all the attention, but social media isn’t the only area where investors are putting their money. When it comes to venture capitalists, Information Week reports, VCs’ favorite place to invest in 2011 was the health IT sector. Specifically, medical software and information services attracted $633 million in VC investment in 2011–the most this sector has attracted since 2001, according to data from Dow Jones VentureSource.

DowJones data shows VC investment in health IT rose from $394 million in 2009 to $520 million in 2010. 2011 saw a 22 percent increase in dollars invested, along with a 26 percent increase in the total number of deals–from 68 in 2010 to 86 in 2011.

What’s behind the surge of interest in healthcare IT? The last three years have seen wider adoption of electronic health records, accelerated by President Obama’s federan incentives. And consumers’ and healthcare practitioners’ growing comfort with using the Internet, software and mobile devices to store, access and manage health-related data has attracted VCs’ attention.

And their interest in the health IT sector shows no sign of slowing, according to the most recent Venture View survey by Dow Jones VentureSource and the National Venture Capital Association. The poll of more than 500 venture capitalists in late 2011 found 61 percent predict investment in healthcare IT will rise in 2012.

While health IT is a rising star of healthcare VC investments, biopharmaceuticals was still the healthcare industry that got the most VC investment in 2011, with 302 deals at a total of $3.9 billion. However, compared to 2010, that figure represents a 6 percent decline in deals and flat dollar investment.

Medical devices came in second, with 290 deals in 2011 for a total of $3.3 billion. Although the number of deals declined slightly, investment dollars rose by more than 25 percent.

Where are VCs not investing? Perhaps due to uncertainty as to how healthcare reform will actually shake out, investment in healthcare services plummeted from $1.2 billion in 2010 to $541 million in 2011.

Overall, the Dow Jones VentureSource quarterly survey of VC investments in energy, consumer Web and IT, health, and electronics and computer hardware companies showed that total VC investments slowed in the last quarter of 2011, the year overall saw 3,209 deals for a total of $32.6 billion. That’s a 10 percent increase in capital raised and a 6 percent increase in the number of deals compared to 2010.

Image by Flickr user takomabibelot (Creative Commons)

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Posted in Capital Access, Raising Capital, Small Business, small business, Venture Capital | No Comments »

2011: A Good—and Bad—Year for Venture Capital

January 24th, 2012 ::

By Maria Valdez Haubrich

The fourth quarter 2011 data from the National Venture Capital Association is in and there is good news and bad news about the venture capital industry.

The good news is that the amount of money venture capital firms are investing is on the rise; the bad news is that the number of venture capital funds out there is declining. In the U.S., 38 venture capital funds raised a total of $5.6 billion in the fourth quarter of 2011, representing a dollar increase of 162 percent but a 41 percent drop in the number of funds compared to the third quarter of 2011. (In that quarter, 64 funds raised $2.1 billion.) This quarter marked the lowest number of funds raising money since the third quarter of 2009.

In all of 2011, U.S. venture capital fundraising totaled $18.17 billion from 169 funds. That’s a 32 percent increase by dollars compared to 2010, but the same number of funds.

“This past year we saw more venture capital money raised by essentially the same number of firms, a sign that consolidation within the industry is continuing,” said Mark Heesen, president of NVCA, in announcing the data. “We also continued to invest more money in companies than we raised from our investors. Both of these trends – if they continue — suggest that the level and breadth of venture investment is starting to recalibrate to reflect a concentration of capital in the hands of fewer investors. Our cottage industry is indeed getting smaller still and that will impact the startup ecosystem over time.”

How will this shakeout affect small businesses? Consolidation in financial industries generally makes it harder for smaller companies to get backing, as bigger funds with more dollars to invest are more likely to look for high returns and less likely to take risks on smaller firms without a high potential for ROI.

At the same time, a shakeout is also occurring in the IPO market. The NVCA recently reported that in 2011, 52 venture-backed companies went public, representing a value of $9.9 billion. That’s a 31 percent decrease in volume, but a 41 percent increase in dollar value compared to the previous year.

In other words, with both venture capital investment and venture-backed IPOs, the trend is toward fewer and bigger players, meaning bigger—but fewer—deals.

Image by Flickr user photosteve101 (Creative Commons)

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Posted in Capital Access, Small Business, small business, Venture Capital | No Comments »

New Financing Option for Small Businesses: SBIC Impact Investment Initiative Launches

August 18th, 2011 ::

By Karen Axelton

Small businesses seeking capital in Michigan have a new source of options thanks to the Small Business Administration. The SBA last month announced that InvestMichigan! Mezzanine Fund will be the first licensed Impact Investment Fund in the SBA’s new Impact Investment Initiative. The $130 million venture capital fund will provide capital to businesses that are headquartered in Michigan, have a significant presence in Michigan or are in the process of expanding their operations in Michigan so they can grow and create jobs.

The InvestMichigan! fund is the first stage in a $1 billion commitment over five years through the SBA’s Impact Investment funds, part of the Obama administration’s Startup America initiative announced in January. Karen Mills, SBA Administrator, said Michigan was chosen as the launch state because of its economic struggles as well as opportunities.

Startup America is a White House initiative to bring together public and private organizations to help entrepreneurs. It will use the infrastructure of the SBA’s Small Business Investment Company Program (SBIC), which supplements private equity capital and long-term loan funds to help small businesses expand. In FY 2010, according to SBA data, the SBIC program provided $1.59 billion of financing to nearly 900 U.S. small businesses.

The Impact Investment Initiative is expected to put up to $1.5 billion into the hands of small businesses over the next five years. It will combine public and private funding for high-growth companies that generate not only a financial but also a “social” return. The program will focus on businesses in underserved markets or in sectors that have been defined as national priorities. Impact investments can be:

  • Place-based, targeting small businesses located in or employing residents of low or moderate income areas or economically distressed areas; or
  • Sector-based, targeting industry sectors that the Administration has identified as national priorities. (Currently only clean energy and education have been identified as priority sectors.)

The SBA will collaborate with private, institutional investors to identify impact investments and provide licensing and capital to fund managers who qualify to organize and operate an Impact Investment SBIC.

For more information on the Impact Investment Initiative, visit the SBA website.

Image by Flickr user TexasGOPVote (Creative Commons)

 

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Posted in Capital Access, Raising Capital, Small Business, small business, Venture Capital | No Comments »

Small Biz Resource Tip

April 27th, 2011 ::

Springboard 2011

If you’re a women-led business in a high-growth industry looking for investment to propel your business to the next level, you’ll want to bookmark the Springboard: Venture Forum 2011. Springboard is a nonprofit organization whose platform is designed to help promote, showcase and connect investment-ready women-led business with investors, experts and other entrepreneurs. Right now through May 2, Springboard is looking for women-led companies at all stages of business growth to apply for the 2011 venture forum program. The program consists of a four-month relationship building and business assessment program including interviews, a business boot and investor presentment opportunity. Check the site for application qualifications.

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Posted in Capital Access, Raising Capital, Resources, small business, Technology, Venture Capital | No Comments »

Small Biz Resource Tip: Angelsoft.net

January 6th, 2011 ::

 

Angelsoft.net

If you’re looking for a way to reach venture capitalists and angel investor groups, check out Angelsoft.net’s detailed list of investors. Angelsoft.net provides access to 588 angel groups, VCs and funds, plus over 29,000 investors. Search by the amount of funding you’re seeking, the kind of businesses the investors are interested in, and even the terms the firms usually offer. Angelsoft then manages the deal for the investors, help entrepreneurs with their business plans and more. Prices range from free to $250 a month. Entrepreneurs are limited to three applications at one time.

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Will New Regulations Clip Super Angels’ Wings?

December 23rd, 2010 ::

By Karen Axelton

Have you heard of “super angels”? While regular angel investors put money into small businesses individually or in groups, super angels also manage other people’s investments in startups. In recent years, super angels have become a more important source of financing for small businesses as traditional capital sources have dried up.

But the Securities and Exchange Commission has proposed new financial regulations that could hamper super angels, VentureBeat reports—and that would be bad news for small businesses.

The proposed new regulations would require venture capital funds to be subject to public information reporting requirements for the first time. While experts cited by VentureBeat say this change wouldn’t have a detrimental effect on overall VC financing, it would hurt super angels—currently the fastest growing part of the VC industry.

Super angels typically run very lean and mean with a tiny staff; in fact, many outsource their back office functions altogether. Because the proposed reporting requirements will require compiling and maintaining lots of additional data, super angels would most likely have to revise their back offices and add staff, boosting their administrative overhead.

However, if the proposed rules are adopted in their current form, most traditional VC funds would be exempt based on the Investment Advisers Act of 1940. The good news: The SEC is seeking commentary from the public to ensure that any proposed regulation conforms as closely as possible with the standard industry standard practices that currently exist. This may be a sign that the commission will seek not to disrupt the effectiveness of super angel investors.

You can learn more about the proposed rules and how to submit comments at the SEC website.

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How to Fund A Startup

December 23rd, 2009 ::

startup-fundraisingOk, so you have your billion dollar idea and you have a few trusted people that want to build this product and a few advisors to help you along the way. Most great ideas sit on the shelf because they are lacking in one thing – money. The second thing is execution but if you don’t have money you usually can only execute things so far. We have gathered a few great resources to help you get the basics down.

Show Me the Money – Video on Funding a Small Business

Microsoft has built over the last few years some stellar small business resources and this video below is no different. This video is an overview on the types of funding and how to raising money for your small business. It only 3 minutes long and is really great and to the point. Check this out:

So, you now know there are a few types – bootstrapping, debt financing, friends and family, angel investors and venture capitalists.

Things You Need to Get Ready

In researching a general set of steps to get your business ready for funding I came across this great article on VentureBeat called Startup Fundraising 101. The bottom line is that you must put together right structure, package the business for presentation, figure out how much you need and identify your ideal investor. I would refer to the types of investors reviewed in the video above. Once you are ready you need to think about valuation or how much your business is worth and what an investor would get in exchange for that investment. You need to put your pitch together and get out there.

I picked a particluar section from the post on Venturebeat that dives into figuring out how much you need. This aligns with the theme of this post on funding your startup and there are some points that need to be repeated. Check it out below.

How Much Do You Need?

You can do a simple or detailed analysis of your expenditures for product/service development, salaries, general and administrative expenses and marketing. How deep you go with this is up to you – but the analysis needs to take place regardless.

Obviously, startup costs vary greatly depending on industry. Just remember to have enough runway to raise your next round and not lose momentum.  Also, expect unexpected costs. Adding a 30 percent buffer to your financial projection can be a lifesaver.

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Images: Venturebeat

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Posted in Capital Access, Raising Capital, small business, Venture Capital | 3 Comments »

Understanding Angel Funding vs Venture Captial

December 4th, 2009 ::

It should be noted there is a distinction to be made regarding equity investors. Knowing the difference between Angel investors and Venture Capital is critical to working with and marketing to them.

With Angel investors the first very important attribute should be – are they truly professional accredited investors. Only work with professional investors who properly know how to manage the transaction so that it does not encumber further investment down the road. Angel investors have various motives and drivers that will get them to become a partner in a company.

Unlike angels who work independently, Venture Capital Funds are managed by a team of people who answer to shareholders. The VC group goes out and raises a Fund themselves, targeting a specific mission. By the time a potential client is being considered, there is a council of voices that must be attended to and reasoned with. So the experience is much more institutional, with layers of process. Obviously smaller VC funds are more streamlined, but for the purposes of this discussion the difference between working with an Angel and a Venture Capitalist is generally individual versus group. A good FAQ about Venture Capitalists is on the NVCA web site.

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The Art of Raising Venture Capital

July 2nd, 2009 ::

Most of you who know me know I am big fan of Guy Kawasaki and not just because he was an Apple evangelist but because he understands startups. He invests in them, launches his own and writes no BS books on the topics that are must reads for anyone out there looking to start a business, especially if you are looking to raise capital for your business. The SBSI notes that the most challenging problem for small businesses is raising capital.

I wrote extensively about raising venture capital when I used to run VentureFiles and write about my experiences as an entrepreneur in the trenches raising money from angels and then venture capitalists. It is hard to impart this kind of real world experience into lessons. But Guy Kawasaki has done just that.

These videos are from his post “The Art of Raising Venture Capital” and attempt to explain the art of raising venture capital. It is broken into three parts.

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Posted in Capital Access, Venture Capital, Videos | 2 Comments »