Techpreneurship: What’s Getting Financed and Where?

Jeff Amerine

Techpreneurship, with Jeff Amerine

(Jeff Amerine is an IA advisor and officer with the University of Arkansas Technology Licensing Office. Each Thursday, his Techpreneurship blog will appear in INOV8. Drop him a line in comments.)

Venture finance, like the Death Valley ultra-marathon, can cause near-death experiences, hallucinations and long periods of despair. The best part of either process is reflecting on the process once it is long over.

Thankfully, our memory for pain is short or there would be no serial Techpreneurs.  For Techpreneurs in Arkansas, the challenge begins with even finding the race, because the race venues for venture finance are sparse here.  This reality is something many good people in the Arkansas public and private sector are working hard to change. They would all agree there is much more work to be done.

I personally have seen two very promising technology ventures in the past few months that were unable to find venture funding locally.  Where do you suppose they found venture finance commitments of over $6 million?

California, Dallas, Austin, RTP?……No, no, how about Asia!

The deals will follow the liquidity, and while Asian VCs won’t likely have a dominant global position anytime soon, it made me wonder where and what deals U.S. VCs were doing these days…

Dow Jones VentureSource gives a great summary view at  http://fis.dowjones.com/VS/2QUSVCFinancing.html.  Here are some key points VentureSource makes relative to the most recent quarter:

Fast Facts

• With 595 venture deals and $5.27 billion invested, Q2 is 32 percent improvement over Q1.
• Health care investment buoys VC industry, outpaces IT investment for first time.
• Despite improvement over Q1, IT investment still weakest since 1997.
• Corporations step up to help, invest the most in VC-backed startups since 2000.
• Median-deal size shrinks to $5 million, lowest since 1999.

Regional Perspectives

As usual, California dominated venture-capital activity in the second quarter, representing 42 percent of the nation’s deal flow and 46 percnt of the capital invested. By major region, the VentureSource data showed that:

• Investment in the San Francisco Bay area fell 41 percent to $1.83 billion with 180 deals completed—on par with levels seen in 2005.
• New England garnered $640 million in 85 deals, a 39 percent decline from investment in the region during the second quarter of 2008.
• Venture capitalists invested 59 percent less capital in Southern California during the second quarter with $433 million put into 62 deals.
• The New York Metro region attracted $372 million in 44 deals, down 12 percent from a year ago.
• Investors put $296 million into 14 deals in Colorado during the second quarter, the most since 2001.
• Investment in Washington state slipped just 2 percent in the quarter to $272 million with 40 deals completed.
• With nine venture deals, North Carolina’s Research Triangle received $101 million in venture financing in the quarter, 12 percent less than during the same period last year.
• The Potomac region attracted 69 percent less capital in the second quarter with $81 million going into 17 deals.
• Texas garnered $73 million in venture capital with 19 deals done, off 53 percent from a year ago.

Here’s my assessment.  U.S. VCs in general are still making fewer new investments because they need the cash they have to support existing portfolio companies.

Most VC firms have also become more conservative. They now look for deals that are much, much closer to profitability.  Exits through acquisition are currently rare. The IPO market is essentially dead.  Until the overall economy improves, these negative trends in U.S. VC funding will likely not change. This makes the race for venture finance across Death Valley even more painful.

So what can an Arkansas Techpreneur do?  Follow the money and focus on the sectors getting national attention, private funding, and public funding — i.e. healthcare technology, renewable energy and clean-tech that leads to conservation/savings…What else?  Look outside the box for potential funding sources around the world….like Asia.

I want to hear from you!  Shoot me your comments and perspectives.

Leave a Reply