Venture 2008 Preview: VCs Still Ready To Pull Triggers on Good Deals

Research Triangle Park, N.C. — Entrepreneurs seeking funding for new companies and products need not fear that a slowing economy will affect venture capital investments, according to Steve Nelson of the Wakefield Group.

Nelson, one of the region’s most active venture capitalists, will be leading a panel discussion about the capital markets at the Council for Entrepreneurial Development’s Venture 2008 conference next week. The event, set for April 16-18 at the Washington Duke Inn and Golf Club, will feature scores of presenting companies from as far away as Indiana and investors from across the U.S.

Inn a Q&A with Local Tech Wire, Nelson said entrepreneurs with “great ideas” can still attract investors. It’s also his belief that venture funds will also continue to be able to raise capital.

However, startups looking to find successful “exits” through initial public stock offerings face a difficult challenge, Nelson added.

The interview:

First quarter IPO and M&A activity figures are just out, and they weren't strong. Are these exit ramps closed or at least reduced to one lane?

Yes, I think they are reduced to one lane. Only the very best companies that have probably something close to $100 million in revenue; a quarter or two of profitability (for a tech or biotech company- with promising results/product- assuming they want to take it public).

In the current economic environment, are venture capitalists and angels going to be more reluctant to invest?

Not for great companies or great ideas. There will be a focus on seasoned or previously successful entrepreneurs. Those with unproven business models or those that haven’t done it before will have a challenge for raising funding. More focus will be placed on the entrepreneurs with a track record.

Will venture capital firms have difficulty in raising new funds?

It is all about track record and performance. It will not be difficult for those who have a track record of success and performance. Those with a great investment team, a unique strategy, and a history or track record (IIR) will have no problem raising money but for others it may be a challenge.

When financial markets are tight, what must entrepreneurs do in order to attract investors at early stag?

For tech companies, demonstrate early customer successes or wins (where two or three customers have selected you over a competitor-proof points). For the biotech side, show you are previously successful or that you have an incredibly promising science- something that will change the world that would be worth taking the risk for.

Given how much venture capital has been raised the past couple of years, are VC funds in general still adequately stocked with capital to make investments?

Yes, absolutely. I think it will be the survival of the fittest. The best venture firms will continue to raise capital.

What does the investment climate look like from a deal flow perspective? Are there still good companies and ideas/products out there that deserve funding?

Yes, no question about it. It would need to fit the model of a promising idea or have a successful track record.

Is a particular sector hotter than others?

Biotech/life sciences: drug discovery is one that is attracting capital; advanced materials/nanotech

Tech: Software as a service (SaaS); Web 2.0 platforms and services; Mobile/wireless

Public safety (life after 9/11)

Recent reports about investments in Web 2.0 companies seem to indicate that market is maturing. Do you concur?

I think the maturing for Web 2.0 with regards to social networking many have already matured- but Web 2.0 with more of a focus on business and consumers is still to come.

Looking beyond the rage for social networks and opportunities to capitalize on them, what's coming next? What's the next wave?

Business services and those mentioned (earlier). But personalized medicine will be important and exciting to watch moving forward.

Do you see good investment opportunities in the Research Triangle and in North Carolina?

Absolutely, successes and winners are created here which is of interest to outsiders. We have a lot to offer people and we are a welcoming community for investors, entrepreneurs, etc. RTP is a draw because of its innovation of science and technology coming out of local universities, we have entrepreneurs with a track record, and big businesses here. Add to that access to capital and a wonderful place to live and work and you get a lot of promise and growth potential. Others have already arrived (Boston, Silicon Valley, etc) we are the next great place.