Venture Money 1996-98

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Venture capitalists have their own game show Mercury News Staff Report Call it a cross between the ``Dating Game'' and ``Wall Street Week,'' with maybe a bit of ``Home Improvement'' thrown in for good measure. The ``Money Hunt,'' a national public television show that airs at midnight in the Bay Area, is taking the craze for venture capital to the couch potato: It asks entrepreneurs to make their pitch for funding on television. Behind a subdued set that looks like the arch of a huge compass, three panelists talk in upbeat terms with earnest entrepreneurs, lobbing gentle questions about their business plans. Then the panelists choose one of the companies to receive private ``mentoring.'' Sound a little dull compared with English soccer or the ``Twilight Zone''? Well, at 12:01 on Monday mornings, one of every 100 Bay Area households with a television is watching -- a rating KQED (Ch. 9) says is just fine. It's a long way from the clubby etiquette and serious numbers crunching of Sand Hill Road. In fact, ``Money Hunt'' has the breathless feel of a television talk show. A woman announces the program with, ``Who's going to get a chance to turbo-charge their growth plans?''The ``Money Hunt'' founders, who say they aim to create a kind of Martha Stewart enterprise for entrepreneurs, report that 13 of the companies featured in its first year raised a total of $17 million after appearing on the show. It's far from clear, however, just how much ``Money Hunt'' contributed to that funding. Unlike other late-night pitches for dollars, the entrepreneurs aren't seeking investments from Ma and Pa Couch Potato. The big investors who fill their needs for million-dollar-plus investments aren't likely to be swayed by a TV spot. Free publicity In fact, the entrepreneurs say the chief value of ``Money Hunt'' lies in the free publicity it offers -- and the boost in morale it can give to a hard-pressed start-up. ``Our experience with `Money Hunt' has been very valuable,'' says Reade Frank, a marketing manager for Destiny Software Inc. in Conshohocken, Pa. ``But at the same token, we can't point to having received money from someone who saw us on the show.'' ``The show is not about winning the jackpot,'' says its founder, Miles Spencer. ``There's no bag of gold. But in my opinion, we really play an important piece in the process.'' The show, which is produced in Norwalk, Conn., has a savvy sense of hype itself. Among other things, it's garnered sponsorships from Yahoo Inc. and PriceWaterhouseCoopers LLB. And it offers a range of Martha Stewart-like goodies on its Web site ( downloadable business plans, videotapes and CD-ROMs. ``Money Hunt'' even made a local foray last month when Spencer, a well-coiffed young man who has a dog named Netscape, auditioned entrepreneurs outside a Churchill Club meeting at the Marriott Hotel in Santa Clara. The show has promised to put one and perhaps two of them on the air. This bends the ordinary sequence of venture capital courting. Typically, entrepreneurs meet elite venture firms through a mutual contact - a lawyer, an accountant, another entrepreneur. Typically, too, the hottest young companies don't want to tell the world exactly what they're doing. WebTV Networks Inc., now a subsidiary of Microsoft, began under the guise of doing research on sleep deprivation in animals. But for the entrepreneurs who appear on the show, who generally do things that don't involve secret new technology, the exposure is the equivalent of a hot light in a greenhouse on a winter night. When the CEO of Destiny Software, Lucinda Duncalfe, first appeared on the show in early 1997, her company's plan was critically analyzed by Spencer, who with lawyer Cliff Ennico are the show's two regular panelists. This year, she came back to announce that she had gotten her funding -- and that the company was thriving despite the critique. ``The show does raise awareness,'' explains Destiny's marketeer Frank. ``When you have a CEO on TV, it's a great rallying point for the company.'' With billions to invest themselves and their own sources of deals, venture capitalists do not acknowledge any threat from the televised version of the entrepreneurial pitch. ``It's not like investors are dialing in and pledging money,'' says Dave Witherow, president of Venture One, a San Francisco firm that analyzes the venture industry. ``At best, this is going to generate a follow-on meeting. I don't think it's an impossible way for a company to receive some exposure.'' Like many other young ventures, Money Hunt got its start when opportunity slapped its founder upside the head. Spencer, a former investment banker, was giving a seminar in Westport, Conn., when a fire marshal decreed that too many people were in the room -- and that 30 or 40 would have to leave. One of the attendees suggested Spencer put on a television show to accommodate them. [San Jose Mercury, Dec 22]


No Shortage of Arizona Angels
(Dec 21) A group of angels is coming to look after the Valley's emerging companies. Chris Augur and his partner Rick Marshall have created the Arizona Angels who will invest $300K-$1M in a company and take a role in its management. The Arizona group of 40 investors will meet every other month to hear presentations from about three companies looking for investments. If a handful of investors are interested, they invest $50-$150K in the business. One of the backers would join the company's board. About half of the presenting companies are expected to get funded, creating a total investment around $8M for the first year. Gathering the angels was "surprisingly straightforward," Augur said. Phoenix has many affluent semi-retired executives with money to invest, but until now there was no place for them to find companies to invest in. Information: Legacy Capital Partners, 951-0214. [Rebecca Rolwing, Arizona Republic, Dec 18]
There's more money becoming available for Arizona technology companies. Robert Dunaway, a computer law attorney who previously made private investments in San Jose-based tech companies, is launching a $15M venture capital fund that will focus on businesses here. "There are many deserving Arizona companies going without funding," he said. "I will place an emphasis on Arizona." The fund will invest in 12 to 18 early-stage firms over three years, making investments of $500K- $1M. Dunaway is looking for companies involved in information technology - including the Internet, telecommunications, computer hardware and software - and bioscience. Dunaway, who has lived in Paradise Valley for four years, anticipates that finding good companies will be easy. "I have found a much broader and deeper technology community than I ever thought existed here," he said. More information 468-5751. [Rebecca Rolwing, Arizona Republic, Dec 15]
Angels have a problem: so much money and so few good new companies. A good company is one with the prospect of making a lot of profit; it is NOT a company doing good science with grand societal benefits. SBIR is actually in the same position: too much money for too few really good prospects. So, SBIR competes with the angels for the good investments, something it was not meant to do. It was meant instead to fill a capital shortage which has gone away since 1982. Oh, no, of course, there's no shortage of applicants for the free SBIR with stories and they will regale Congress with sob stories about lack of capital and a need to control their companies. If Congress buys it and continues to block real evaluation, it will get only the political gain of handing money to a constituency. Which should be enough for a Congress that would rather squabble over over partisan impeachment than study investment economics. Return to Index

Another Big VC Fund Silicon Valley has another giant VC fund, $550M for New Enterprise Associates which has started funding companies early-stage information technology and life-. It plans to fund 90 companies during the next three to five years. [story from San Jose Business Journal, Dec 14] Never mind, the SBIR advocates will petition Congress for more money because they cannot get VC money.

Just a month ago, many of the folks who arrange new stock offerings were starting to contemplate other lines of work, but then the new-issues market unexpectedly snapped back to life with a roar heard 'round the globe-thanks in part to a newcomer called, as it happens. On November 12, this little Internet company, cooked up a few years back in a Cornell University dorm room by two kids barely old enough to vote, offered 3.1 million shares, which proceeded to shoot from $9 apiece to $97. Not bad for an outfit that makes a living helping people set up their own World Wide Web sites. ... only 337 new stocks made it from issuer's dream to reality in the 11 months ended December 4. That might sound like a prodigious birth rate, but it's the lowest since 1990, according to Securities Data Co. Indeed, the number of new issues in '98 positively pales in comparison with last year's 592 IPOs, and it falls even further short of the 864 deals that were priced in 1996, the high-water mark. [Barron's, Dec 14]

Why are venture capitalists so eager to dole out cash? It's not that venture capitalists are unaware of market signals that other investors are heeding, according to Jay Hare, a VC firm partner. There is just a lag. "They're insulated. It takes a long time to affect venture capital." Venture capitalists are still flush with money that pension funds gave them last year and earlier this year. And that money must be spent by investing it in start-up companies. It is only when that flow of funds from institutional investors to venture funds slows, that venture capitalists will slow their funding to start-up companies. That bottom may be coming soon. Pension funds have been accustomed to earning 40 percent annual returns in the past three years from their allocations to venture capital funds. But with the IPO market stalled this year, venture capitalists have struggled to cash out of their early-stage, private-equity investments. Venture-backed IPOs have fallen from 275 in 1996 to 136 in 1997 to just 68 so far this year. That probably will lower the returns of venture capital funds this year, experts say. [Jill Barshay, Minneapolis Star Tribune, Nov 20]


Of course, forecasting the future is chancy work. Just ask the VCs and investors who bet billions on such can't-miss technologies as artificial intelligence, computer telephony, personal digital assistants and picture phones (and picture phones again). A few of these undoubtedly will fulfill their early promise. But as the old saw goes, others are the technologies of the future, and always will be.WM Bulkeley, Wall Street Journal Nov 16] More Forecast. In China, 1999 will be the year of the mouse. In the U.S., 1999 will be the year of mouse-like equities, small cap stocks. Measured by the INDI SmallCap 500 index, an index created to track the progress of the fastest growing small stocks in the U.S., earnings growth for 1999 will average 30%. ... Investors will most likely liquidate their fortunes made in large caps over the last seven years (paying homage to Ronald Reagan as they bark their sell orders to nervous Wall Street lackeys) and re-invest their well-gotten gains in small cap securities. I beseech thee to get in early. Actually, I have been beseeching thee for the last three years. If "pounding the table" is the accepted analogy for being bullish on a sector, I have destroyed quite a few tables in recent years in my homage toward small cap stocks. [Tom Byrne, Individual Investor]

Q. Imagine a high-tech capitalist calls you up to get input on building a startup that will be a sure winner. What would you say? A. futurist Watts Wacker: I'd want him to answer four questions:
1- Do you know who you are?
2- Do you know where you want to go?
3- Do you recognize your seminal moments?
4- Do you have the attitude of an insurgent?
Few companies I know can answer those questions in the kind of detail needed, but if you can, we can fiigure out how to accomplish your goal.
[Upside, Dec 98]

Tony Jenkins, whose Stratford Safety Products in Chicago (which got $3M of VC) says,. "It's better to have a slice of a big, gigantic pie than a larger portion of a cupcake," Illinois' spotty venture-capital market, where money is the tightest it has been in more than a year. Statewide, 13 companies got $42M in VC financing during the third quarter, according to PricewaterhouseCoopers. That's down two-thirds from $122M in the second quarter, and less than half the $87M "Companies that six to twelve months ago might have been planning an IPO for their next round of growth are now looking to private equity sources," Experts said another three to four months of hard times in the IPO market could significantly damage valuations for venture capital seekers. The good news is that the sluggish equity and IPO markets have recently begun to turn up, meaning valuations for venture capital deals should rise as well.... "The IPO market is very much alive," said Marshall Front, managing director of Trees Front Associates, a Chicago investment counseling firm. "It's amazing how quickly it happened. One week it's dirt, the next week it's gold." [Chicago Tribune, Nov 17]

Despite the shaky stock market this past summer, venture capital investors showed no fear as they poured a record $1.25 billion into 170 Bay Area startups in the third quarter. That was up from $1.18B invested in 183 local companies last year. [SFC, Nov 12] Venture capital investments in Southern California surged to a record $290M in the third quarter, up 47% from the second-quarter total of $197M and 15% higher than $25M a year earlier, PricewaterhouseCoopers reported. [LA Times, Nov 14] Call it optimism in the face of adversity. As US stock markets nose dived and most investors bit their nails, venture capital funds pumped a record-setting $551M into 114 young New England companies during the third quarter, continuing their bets on software, communications, medical technology - even retailing and education - as tomorrow's moneymakers. [Boston Globe, Nov 15]

The deteriorating state of IPOs You've heard by now what's wrong with the market forIPOs is a lot like the problems with the system that exploits young basketball players: Most never make it to the big leagues and many of the wrong people get rich while the average player's dreams are dashed. Now along comes a polemic from some practicioners of the IPO game, the savvy folks at Midtown Research Group LLC in New York. In a just-released report entitled ``It Had to Happen,'' Midtown contends that U.S. investment banks have greedily abandoned whatever standards they once had regarding taking public young companies. Once upon a time, private companies that wanted to offer shares to the public -- the ``initial'' means the shares haven't been offered before -- had to have sustainable and proven businesses before underwriters would suggest that their clients invest. No longer. The result has been a wealth of schlocky deals and startlingly poor returns. Of 341 IPOs in 1997 that exceeded $20M, the median return (using a median rather than an average smooths out the effect of smashing successes and abysmal failures) from IPO date to present was negative 11%. Of those IPOs, 55% trade below their IPO price and 24% are down more than 50 percent.``The response has been predictable,'' grouses Midtown. ``The IPO gate through which all aspiring enterprises must pass has become tarnished and tattered as a credible investment arena.'' One of Midtown's warnings is downright shocking. ... It is as much fun for investors to watch smashing IPO successes as it is for sports fans to take in an NBA playoff game. Just be careful your money isn't on the wannabes the hucksters are telling you are a sure thing. [ADAM LASHINSKY, San Jose Mercury News, Nov 15]

Micro Cap Focus: New Mexico & Arizona This week at RCG Capital Markets' fourth annual growth stock conference in Phoenix, I noticed a striking bullishness for small caps by attendees. Most of the 300 participants have actually been right for the past week or so. The Indi Small Cap 500 and the Russell 2000 indexes have been outpacing their larger peers. I was just as worried about small caps as the rest of you, but my confidence is perking up again. The recent small-cap bear market has produced a boatload of value plays. [Individual Investor]

Stevenson said an experienced angel investor, usually an individual who puts up his or her own money to help a small company grow bigger, should have low expectations. Out of nine or 10 investments, he said, one company may turn into a big winner, two or three will perform just modestly, and "five will go down the tubes.'' Stevenson will be a panelist Wednesday at the Rockies Venture Club's fifth annual Fall Finance Forum, a program on how to be a "successful'' angel. ... Rick Newton, a manager at American Express Tax & Business Services, which is sponsoring the forum, said studies estimate there are 20,000 angels with money to invest in Colorado, and 720,000 around the nation. The forum has offered a way to find them out. [Denver Post, Oct 30]


VC Up Again Venture capital put $3.1B into small companies in the third quarter, up 2%. All that past profit competing for the best deals still drives up the price to play VC despite another dead period in IPOs. With a lot fewer marginal IPOs, the median IPO went up 28% (says Venture One, quoted WSJ, Nov 3). Wanna play VC for fun and peril? Technology Funding is selling shares via Internet in VC-6. You need a net worth of and annual gross income of only $45K or net worth of $150K. [says Wired, Nov98]

Investors and entrepreneurs are looking for 20-times returns on their initial investment within three years, versus the early 1990s when 10-times returns over a five-year period was considered fair. Why? Because most of the new millionaires in the valley are dreaming about Porsches and million-dollar boats, and the perception is that the game, particularly when it comes to the Internet, is played out faster than ever before. The technology entrepreneur is a unique animal who toils in absolute anonymity, invents a product, brings it to market and makes anyone who believes in that vision, rich, sometimes extremely rich. Venture capitalists, friends and family, investment bankers, employees and stockholders all sponge off that dream and dilute it down over time. [Forbes, The Digital Tool] Wanna get free VC? Tap the government, just don't complain that the government doesn't know anything about innovation for commercial markets except how to pass out money.

Southland Venture Firms Seeing More Cash
In a sign that Southern California is becoming more attractive to venture capital investors, partners at several local funds said they are raising record amounts of cash to invest in new businesses here. At Brentwood Venture Partners in Santa Monica, managing partner G. Bradford Jones says the firm already has commitments for about $600 million for its latest fund, but plans to cap the fund at $300M . ... Last week, Brentwood made its largest investment ever, $11M. in Long Beach-based CIMvision, a privately held and profitable software company, it said. ... Northern California, especially Silicon Valley, has historically captured the bulk of California's venture capital money. Indeed, there are 150 venture funds in the northern half of the state, compared with about 20 in Southern California. ... The "internal rate of return" to limited-partner investors in the Brentwood funds has ranged from about 39% to about 91%, the company said. But this is a complicated rate calculated on the basis of an investor constantly reinvesting his or her earnings on the original investment and covers the period from the inception of the funds until 1998, rather than being an annualized number, the company said.
[DEBORA VRANA, LA Times, Sep 14]

Technology companies received more than 75% of the $73.1M in venture money invested in New Jersey businesses last quarter, according to the latest PricewaterhouseCoopers Money Tree Venture Capital Survey. Info-tech companies received the most funds, $34.4M, or 47.1%.. Medical instrument and device companies were second, getting $14.5M, or 20%. Business services providers ranked third, with $7M, or 9.6%; communications companies were fourth, with $6.8M, or 9.3%; and health-care businesses $6.5M, or 8.8% [Philadelphia Business Journal, Sep 14]

We Got Plenty of Money
(Sep 14) When you make $1.5 billion from a $1 million investment, you hardly worry about losing your shirt. At least that was the cool response offered by some of Silicon Valley's biggest investors, as the stock market took yet another tumble, sending less prosperous investors looking for a safe place to put their money. ``We have plenty of money,'' shrugged Michael Moritz, a partner of Sequoia Capital, one of a group of venture capital firms that provide ``seed'' money to inventors and other high-tech startups. ... Although some venture capital investments have produced off- the-chart returns, they remain highly risky: the majority of start-up businesses fail without ever turning a profit. [Andrea Orr, Reuters, Sep 11] Remember two words that drive investors: fear and greed. And for VC investors, greed far outweighs fear. But as many an SBIR hopeful has learned, greed isn't charity. If you have no hope of an off-the-chart return, why should they invest? Let the government buy that stuff and call it investment (what every politician calls spending in his district).

Less than two months after his Atlanta venture-capital firm sewed up $70M financing from investors, Jim Gilbert was in the [North Carolina] Triangle prospecting for young companies that might make good investments.... Venture capitalists from throughout the East Coast are lavishing more attention on Triangle entrepreneurs than ever before. ... The surging interest from out-of-state venture-capital funds, combined with a growing pool of funds controlled by area venture capitalists, is making it easier for the Triangle's entrepreneurial companies to raise the financing they need to expand and prosper. The surging interest from out-of-state venture-capital funds, combined with a growing pool of funds controlled by area venture capitalists, is making it easier for the Triangle's entrepreneurial companies to raise the financing they need to expand and prosper. The proof is in the numbers. The proof is in the numbers. ... In the last six months, it's estimated that 80 percent of the venture capital invested here came from outside NC. [Raleigh News & Observer, Sep 12] Take note, SBIR lobbyists: one of your key arguments is falling apart. You'll either have to recognize the flow of venture money into real market-driven technology companies, or you will have to keep relying on sob stories by small companies for the politicians.

Says Greenberg in the same issue, Investing in IPOs is the drunken tryst of personal finance - it seemed like an awfully good idea at the time, but you probably will regret it in the morning.

(Sep 8) IPOs are extending their late summer vacation by not showing up for work this week. Not until "small-cap stocks show a visible recovery", they're down 20% from their highs, "accompanied by positive cash flow into the funds", will IPOs re-emerge, says Greg Eisen, a small company fund manager. (WSJ, Sep 8)

The Philadelphia Stock Exchange semiconductor index, the SOX, is about half of what it was late last year; the Amex disc-drive index has dropped 65%.... Chip Morris, portfolio manager with T. Rowe Price Science & Technology Fund, notes that since 1986 there have been a dozen declines of 12% or more on the Pacific Exchange's technology index, about one big slump a year. The worst of those drops came in 1987, a 45% slide; in 1990, the indicator fell 35%. At Friday's close, the PSE stood 22% below its July peak; on an intraday basis, the index at one point last week was off 27%. At that level, the slide ranks as the third-worst since '86. [Barron's, Sep 8] Of course if you are a small R&D company expecting only to invest in SBIR awards, you don't care what the competitive market does. Until you go to sell your government gizmo to a private buyer.


``All those companies that end in `-onics' or `-yzx' - companies that can't make it through the spellchecker'' - are going to have trouble raising capital in coming months. Few among the Boston area's venture capital specialists were ready to say that the important Massachusetts technology economy is in imminent trouble. But amid world financial turmoil and Wall Street chaos, even optimists among them were admitting the landscape they helped build along routes 128 and 495, an ever-changing incubator where ideas grow into companies, is about to change. ... There's still plenty of capital available to back good ideas. Only the best ideas, however, are going to get that money in coming months and years. [Sorry, that's not news, only the best ever got investment. Just ask the investors at the time of investment.] [Boston Globe, Sep 2] Venture capitalist Roger McNamee paused during a telephone interview about yesterday's market meltdown to shout at a partner, ``You buying Siebel (Systems)?'' McNamee's stock-buying spree was a sideline to his day job - bankrolling startups. The good news, according to this venture veteran, is that the current market rout won't cut off the flow of capital to new startups, at least not for now. That's because VCs like him are already flush with cash that poured into their funds while the stock market was booming. They'll invest this money over the next few years, almost regardless of what happens on Wall Street. [SF Chronicle, Sep 1] The big dive is good news for the standard issue SBIR winner who can now claim to a gullible government that venture money is not available.

Money's Long Reach
(Aug 25) Over the past several months, California-based Silicon Valley Bank has committed nearly $14 million in credit to five high-tech businesses in [central Florida]. And the bank expects to cement relationships with five more local companies by year's end. "Orlando is a major area of focus for us, along with Atlanta and Research Triangle Park in North Carolina," says Thomas Vertin, senior vice president and Southeast region manager for Silicon Valley Bank. The institution's modus operandi is novel in these parts: Instead of making loans based on tangible assets like most banks, Silicon Valley Bank considers promising high-tech intellectual property -- patents, software, etc. -- the best indicator of financial stability. [Orlando Business Journal, Aug 24] Such transcontinental reach for money says that local do-gooders need not waste public money on pumping up local business that say they cannot find capital. Capital will find them if and when they have a competitively profitable use for it. The same idea applies to federal pumping also in programs like SBIR and ATP. Note that SVB did not list federal R&D contracts as a measure of financial stability.


We saw perfectly fine companies, such as Applied Materials, an arms supplier to the Web, suffer share price skids of 40%, even though any chowderhead could tell you that demand for chips is a mortal lock to quadruple over the next five years. [R Karlgaard, Forbes, Sep 7] IPO Market Shrinks A Wall Street Journal piece (Aug 24) notes that the recent market volatility has slain the IPO market. No new issues two days last week. The whole small stock market has dropped much more than the large stocks. Long-view observers will say that all that money has to go somewhere and will come back to IPOs.

130 IPOs in the second quarter raised $9.4B, up from $6.3B in the same quarter 1997. One third were technology whose average immediate gain was 25%. [Forbes, Aug 10]

VC investments in Los Angeles and Orange counties (California) rose 22% to $197M in the second quarter from $162M a year earlier, and up up 34% from the $147M in the first quarter. For all of California it $1.5B in the second quarter, up 15% from $1.34 billion a year before and 36% higher than the first quarter's $1.1B. Among the biggest recipients of funds an auto financing firm, a Internet services, a maker of telecommunications, a provider of outpatient health-care services. [LA Times. Aug 18] Wonder how many SBIR multiple winners were in the list? If anyone in the government has the gumption or the interst to ask them why not, and they answer that they neither need nor want VC (because SBIR does the job for them), the government should ask itself what it is doing with SBIR. Ask Physical Optics, Ultramet, TACAN, ....

Sprechen Sie VC?
(Aug 17) One of Germany's technology giants has dipped its toe into the Silicon Valley venture pool by opening a $300M fund to invest in networking and telecommunications startups. Siemens AG is a $70 billion industrial Frankenstein that grafts together 16 different divisions, including electric power generation, chipmaking, computing and telephone equipment. Given its size and complexity, Siemens isn't noted for speed, which is a liability in the fast-moving telecom equipment business, where it competes with U.S. firms like Lucent and Cisco Systems. [San Francisco Chronicle, Aug 15]

Reaffirming their confidence in Yankee ingenuity, venture capital funds pumped $379M during the second three months of 1998 into 86 New England companies preparing to launch products and services, ranging from automation to auto repair. ... venture capitalists say investors are flocking to their funds with good reason. ``The main reason is because the returns to date have been phenomenal,''said Arthur J. Marks, a general partner in the Reston, Va.-based venture capital firm New Enterprise Associates. ``That's what attracts the money.'' ... ``Bright people with creative ideas who can create valuable companies will always be an opportunity that we will be investing in,'' said Barry J. Fidelman, an Atlas Ventures general partner. ... ``The big picture is this is a great time to be an entrepreneur,'' he said. ``Technological change is at an all-time high, and availability of capital is at an all-time high.'' [Boston Globe, Aug 16] This thriving industry is what the government claims needs $1B a year in aid called SBIR.

The Fever Hits New York New Kids of Venture Investing: Web-Struck Titans of Wall Street The volatile stock market may provide all the risk that most investors can stomach, but some Wall Street investment banks are making much more daring bets: pumping venture capital into fledgling Internet companies whose initial public offerings may be years away. ... But risks abound. Longtime venture capitalists say that 40% or more of their portfolio might fare poorly, with a few giant successes making up for other losses. ... Nonetheless, securities firms are barreling ahead with venture investing, particularly "mezzanine" investing in companies that are several years old and have already received several rounds of start-up financing. According to Venture Economics, a unit of Securities Data Co., investment-bank affiliates made 211 such mezzanine, or late-stage, venture-capital investments in 1997, totaling $833 million.... some small-company chief executives say they have enough expert coaching already from existing venture-capital backers, and would welcome a big check from a Wall Street firm that doesn't expect to meddle much. [GEORGE ANDERS, WALL STREET JOURNAL, Aug 14] Now what was that again about governmental necessity for investing in commercializable high-tech in programs like SBIR and ATP?

Nationwide, venture firms invested $3.2B in 467 companies during the past quarter. As usual, Bay Area companies were the main magnet, attracting 34% of all the dollars. Venture capital firms are flush with cash from pension funds and other institutional investors. In the first half of this year, VC funds raised $7B,or 34% more than the $5.2B raised in the same period last year, according to Venture Economics. Meanwhile, the average fund size nearly doubled to $112.2M from $65.6M. ... The bad news for venture capitalists is that so much money is chasing the hottest deals that venture firms are having to pay more for their early investment stakes. As a result, Hoag suspects, ``we won't enjoy the 40% to 60% annual returns of the past couple of years.'' [San Francisco Chronicle, Aug 12] There's a lot of money out there looking for its next 40% and a lot of envious rich wanting into the game.

A new venture-capital fund formed to invest in start-up companies with N.C. State University connections has raised $10M. The fund originally planned to raise much of the money from sources affiliated with the university and supplement it with funding from private investors. However, the N.C. State University Endowment and eight nonprofit foundations established by colleges at the university stepped up and committed the entire $10 million, eliminating the need to solicit funds elsewhere. The endowment and the foundations aren't committing taxpayer dollars; they are investing money raised from private donors... The fund intends to invest in start-up firms with inventions that germinated in NCSU laboratories or otherwise have a university connection, such as businesses started by recent graduates or start-ups situated on the university's Centennial Campus. [Raleigh News & Observer, Jul 29]

Venture capital was once the exclusive domain of small firms with names such as Sevin Rosen who quietly sought out the next big thing, planted some carefully spent money, tended their stakes and then took it all public. Now major tech companies, like Intel, Lucent, Cisco, are making more VC investments than ever before. According to the VC research firm Venture Economics, corporations made $64.5M worth of venture investments in 1993; four years later and corporate venture capital was up 236%, to $217M. Don't trust those numbers since companies generally refuse to disclose the particulars of their placements--how much they invest or with whom--so estimates of the extent of corporate venture capital vary. ...The return on venture capital has been a handsome 40% in recent years, but corporate VC isn't about big returns. It's about encouraging technology that will create more demand for the investing parent's products, getting an early look at emerging technologies to stay current with the state of the art, and then owning a piece of them if they take off. From the paranoid point of view, a corporate investment is a direct way of controlling future industry standards. [Forbes Digital Tool, Jul 23] So, hug a big firm as a venture partner IFF you have an industry changer.

Banks Now Lending. Jeff Tannenbaum calls them "bolder banks" (Wall St Journal, Jul 21) which are lending to start-ups. Silicon Valley Bank (guess where) typically lends $300K for each $1M in seed capital. Rate? Well, a banker has to have some protection against the higher than normal defaults. Along Route 128 Fleet Financial is doing it. FDIC does not recommend the practice for main street banks. If you cannot find such a sucker, try the GetSmart matchmaker or Intuit's Business Cash Finder.

Yet Another VC Fund
(Jul 20) Riggs National Bank, Washington, DC (opposite The Treasury) is starting a $100M VC fund. Good news and bad news: every such new source of venture money undercuts the basis for SBIR.

Great Expectations labels Business Week the expected returns of a poll Those not yet retired expected to average a 16.1% annual return from stocks and 10.1% from money market funds. Dreamers. Unless the stock market extends its last few years' performance indefinitely with ever higher price-earnings ratio and money suddenly becomes 10% dear (which would kill the stock returns), there's no chance. If they want such returns, they will have to look for the Intels at birth and have only 80% fail. Watch for them; they will be walking down your street with their eyes cast up.

Venture-capital partnerships are about to become a lot more enticing to individual investors under tax-law changes ... individuals who invest in venture-capital funds will qualify for these same chances to efer taxes. "That should make investing in a venture fund substantially more attractive" for wealthy individuals, said Jonathan Axelrod, a tax attorney at Wilson Sonsini. Instead of paying a tax rate as high as 39.6% for ordinary income, or 20% for long-term capital gains, such investors could end up delaying any tax bite indefinitely. ... The National Venture Capital Association, Arlington, Va., estimated that of the $45 billion controlled by venture capitalists, about 10% to 15% comes from individuals. [GEORGE ANDERS and JACOB M. SCHLESINGER, WALL STREET JOURNAL, Jul 10]

Yet another capital source. While the SBIR beneficiaries were bleating at a Senate hearing about the need for government investment to fill the capital gap, one entrepreneur got SEC clearance to take credit card charges for VC investment. Technology Funding Securities Corp. promised the SEC to include a warning on its Internet site reminding investors that it's probably foolish to use expensive short-term borrowings to fund speculative long-term investments. Minimum purchase - $1000. Technology Funding, which has invested more than $315 million in Silicon Valley companies contributed by 42,000 people, says it has embraced the Internet because it lowers transaction costs. In an industry that normally woos a few dozen well-heeled investors for each multi-million-dollar fund, Technology Funding shoots for the mass market. Its latest fund hopes to raise as much as $100 million that will be invested in young companies for terms of up to 10 years and with investments from as many as 100,000 people. Technology Funding loosely screens investors, discouraging those who don't have annual incomes of at least $45,000 and net worth of at least $45,000. [San Jose Mercury News, Jun 4] That's a long drop from SEC standards for accredited investors (those who are presumed to know what they are doing). If you're thinking about investing, it ain't like the NYSE or NASDAQ; you cannot sell at your option. Note: Carl Nelson Consulting, Inc is not an investment adviser.

Startech, a high-tech incubator in Richardson (TX), has set up a $3M seed fund. The money is available to companies admitted to Startech. Two firms have made the cut so far, and a third is expected to be named this summer. In a news release, officials said fledgling companies will probably need up to $250,000 for chores like completing business plans and doing market and technology analyses. Firms apply for funding the same as if they were seeking venture capital -- which, in effect, they are. Among the venture capitalists contributing to the fund are CenterPoint Venture Partners, Capital Southwest and Sevin Rosen Funds. [Dallas Business Journal, Jun 1]

Talk about revenge of the nerds. High-tech start-up companies have received the lion's share of venture capital funding flowing into Arizona over the past three years. Last year, electronics firms received $49M in seed money, out of a total of $122M, according to a survey by accountants Coopers & Lybrand. [Arizona Republic, May 27]

Hoping for $22M in an IPO is American Xtal Technology which makes substrates of gallium arsenide (95% of sales) and other weird materials such as indium phosphide and germanium, with others in development. Customers include Hewlett-Packard, Motorola, and Sony. Maybe someone will make real money from GaAs after all. XTAL has donated hours of time lately to SBIR events to tell people (not customers) how you can make money from government sponsored R&D.

When it comes to starting and nourishing companies, the entire country is awash in venture capital funding. .. Investors poured $3.23 billion into 674 companies during the first quarter. .. Some entrepreneurs say it is so easy to raise funding now that they are being offered more money than they need. .. 22 percent of the venture money was spent on the initial stages of development, known as seed stage, or first-round financings. This is a strong indicator that new companies are being formed at a rapid pace. [Boston Globe, May 17] Don't worry, SBIR beneficiaries, the government will find an excuse to keep handing out the money.

``To get funded today, you have to show that it's not only better medicine, it's also less expensive medicine,'' says J. Casey McGlynn, an attorney and biomed expert for Wilson, Sonsini, Goodrich & Rosati in Palo Alto. [San Jose Mercury, May 17] Which is also true, in principle, for all SBIR that is heading for commercialization. But since the funding choices will be made by technologists and not vendors, sweet technology for higher performance will still get the lion's share of SBIR. Only in a few places, like BMDO, do the economics come into play on deciding what's a good prospect and what's not. And even there the losers scream that such a criterion violates "scientific and technical merit" as if anyone could legally define such a term exactly enough to win a judicial challenge to a government judgment. Kirschner says, the Internet "is unquestionably a tremendous source of growth." However, he warns that the early leaders in high-growth industries often fall by the wayside much sooner than anyone thinks. Consider, for instance, the auto industry. "For sheer size, pace of growth and money-making potential," Kirschner writes, "no growth industry in American history has rivaled auto manufacturing." Between 1900 and 1908, Kirschner notes, 485 U.S. companies entered the automobile business. By the end of that period, 262 had shut down -- and almost all of the others eventually disappeared, as well. Bad business? No. But long-term success eluded most of the early entrants. [Barrons, May 16]

the 25th anniversary of the National Venture Capital Association... .. all the heavyweights turned out .. Robertson predicted a whole new generation of entrepreneurial investment banks. He used Hambrecht's new firm as an example. .. a new kind of bank that will do most of its business over the Internet. .. everyone agreed that the technology financial market has exploded over the last four years. Of the 952 public technology companies, more than half have gone public in the last four years. The total market value of these companies is close to $2 trillion; the leader being Microsoft, which is now bigger than IBM, and worth over $200 billion alone. The equity value of technology investment funds has also risen from $200 billion in the early 1990s to $750 billion today. Weisel predicts this number will double over the next five years. He also thinks the total market capitalization of the technology market will hit $10 trillion during that same period. [Tony Perkins, ed The Red Herring, May 98] Not good enough!, say the SBIR beneficiaries (The still potential beneficiaries don't know yet that they are supposed to be for a government subsidy.); we need subsidies like SBIR and ATP to help high-tech industry.


VCs criticize angel investors -- the term for people who invest their own money, rather than the capital of a profit-making firm -- for propping up businesses that are nothing more than hobbies or enthusiasms. And even when the businesses have potential, they argue, angels sustain ridiculous, self-indulgent valuations. One venture capitalist recently told an Internet investors' conference that she shies away from companies that have too many angel investors. The angels respond that VCs are no friends to entrepreneurs. They steal businesses out from under their founders and undervalue good companies to increase their returns. Not only that, they waltz in at the last stages of a company's growth to take all the credit. ``They think so much of themselves,'' one angel grouses about VCs. ``It's probably one of the most overpaid professions.'' [CHRIS NOLAN, San Jose Mercury, Apr 30] As one of Sand Hill's elite firms, Institutional Venture Partners has tended to divide its investments into two categories: ``brave new world'' and ``cheaper, better, faster.'' The definitions are almost self-explanatory. ``Brave new world'' investments are those that push the edge of technology, perhaps even creating a whole new industry. ``Cheaper, better faster,'' means an improvement on what has already been done: the cell phone compared to the first walkie-talkie. In IVP's previous funds, ``cheaper, better faster'' always predominated, accounting for at least 80 percent of the investments. Now IVP has formed a new $350 million fund that it says will focus heavily on ``brave new world'' investments in industries like digital television, electronic commerce and individualized medical therapies.[ SCOTT HERHOLD, San Jose Mercury, Apr 30] The government has the same dilemma in its SBIR but IVP is more likely to have a coherent strategy for dividing its attention between the two approaches.


IPOs Doing OK. Aspec Technology which makes software for building integrated circuits, priced above its estimated range and then opened at a 19% premium. Mobius Management Systems, also a software company, increased both the size of its offering and the estimated price range but still debuted at a 24% premium. "We haven't seen too much weakness in the IPO market," said analyst Ken Fleming of Renaissance Capital Corp. [Dow Jones, Apr 28] 18 New England IPOs have enjoyed a 34% return, compared with 18% for 44 California-based companies of the same size. [It is for] high-tech IPOs with opening-day market values of $50 million to $125 million since the start of 1996. [MARK VEVERKA and JOHN HECHINGER, Wall Street Journal, Apr 28]

But most of the rookies thrived by exploiting new markets. They include Catalytica Inc., a Mountain View-based maker of pollution-control equipment whose sales skyrocketed 10-fold last year, and medical-device maker Vivus Inc., whose sales increased more than six-fold. These young upstarts tend to grow much faster than the valley's older, larger companies. Collectively, sales of the 20 newcomers grew by 70% last year, far faster than the rest of the Silicon Valley 150.The valley will need those sorts of fast-growth companies even more this year, because so many of the big names seem headed for a rough patch. Indeed, Wall Street analysts expect profits for technology companies in the first quarter of this year to be lower than in the same period last year, according to surveys by First Call Corp. The last time quarterly profits for tech companies declined compared to a year earlier was in fall 1996. [San Jose Mercury News, Apr 19]

$1.3B IPOs
(Apr 2) In the first three months of 1998, 26 technology companies went public and raised $1.34 billion, versus 42 technology IPOs which raised $890M in the first quarter of 1997, according to IPO Monitor, .... While the total number of technology IPOs declined, more money was raised, indicating that investors are willing to pay a premium price just for the chance to get in at IPO levels. The Digital Tool, Apr 1]

For the last 15 years, The Enterprise Corp. of Pittsburgh has sustained itself on a healthy diet of foundation funding. But the nonprofit, which helps entrepreneurs and startup firms, will have to find new sustenance if it hopes to survive into 1999. The foundations that fund Enterprise have pulled their support, leaving it just enough cash to survive until the end of the year. Who may fund Enterprise after that is unclear. Even more murky is whether the organization, in its present form, is worthy of funding. [Pittsburgh Business Journal, Mar 30] Someone in the sponsor world realized that happy words about entrepreneurs isn't a valuable service. The story didn't say how Mellon evaluated the organization.

the IPO pipeline is jammed with more than 100 proposed deals - most of them small-cap stocks - that are expected to raise some $4.1 billion, according to Securities Data Co., a New Jersey researcher. .. the IPO market is also attracting cash-inundated fund managers, said Daniel Coker, emerging-growth strategist at Schroder & Co. Their search for different ways to invest their money, and the hope of protecting themselves from an eventual slide in the broader market, is drawing them back to new issues and the small-cap sector.[Dow Jones Newswire, Mar 27]

Meanwhile, venture capital is doing just what you would expect from lower interest rates - investing massive amounts. Ann Winblad calls it The El Nino of venture money is lasting longer than expected.. The Financial Times (Feb 19) says,

According to VentureOne, VC firms invested $11.5B last year in promising young companies, most of which were in the high- tech industry. Meanwhile, angel investors have funneled as much as $50B into a wide range of startups. ... By connecting angel investors to each other as well as to investment targets, some groups have created virtual venture capital firms. Band of Angels, started by nuclear physicist turned venture capitalist Hans Severiens, has 100 members worth about $1 billion all together. ... ``Angels will get you out of the garage,''... When the startup has a product or revenues and is ready for ``prime time,'' venture capital firms are a logical source for the next round of financing. ... ``Angels tend to be engineers by training, from CEOs down to VPs of operations, and they understand the technology.'' The Digest of Internet Financing lists Web sites that link sophisticated private investors with high-risk start-ups. [San Francisco Chronicle, Mar 20]


My advice for anyone who is not an expert in the area: don't invest in IPOs., says UCLA prof Ivo Welch, after examining the ways that IPO companies account for their earnings and expenses. Welch says the legal methods let a company look at expenses one way when issuing, and then change the look for later reporting. [Wall Street Journal, Mar 10] IPO Dive IPOs from VC-backed firms dove 51% last year, says venture Economics Investor Services. But that reluctance of investors to buy new issues can't long resist the lure of the 37% average gain of venture-backed firms post-IPO. What limits the enthusiasm is one big difference between IPO companies and Dow-Jones companies -the beta, the odds that any change will be large.

Kleiner Perkins hit home run after home run last year, the loudest of which was its $7.4M in At Home rocketing to $374M after the IPO. Its $8M in Amazon became $208M, and its $2.8M in Rambus became $109. Which means, of course, that KP has about $700M new money to invest. Now what's that wail from SBIR advocates that there's not enough venture capital being invested?

The overwhelming impression was of a dearth of the kind of innovative startups, ambitious of public equity that The Red Herring has always celebrated. ... according to Securities Data, in 1996 245 tech companies offered stock to the public equity markets for the first time, raising $13.3B. By contracts last year only 168 companies had IPOs raising just $7.3B. Whatever happened to the technology IPO? [J Pontin, The Red Herring, April 98]

Why Money Can Always Be Found. Thomas H Lee, Boston's biggest buyout firm, says it has had an annual compound return, before fees, of 101% over its history. Its crosstown rival, Bain Capital, says its compound annual return is somewhere north of 100% - and when annual returns get that enormous, says Bain chief executive Mitt Romney, why do you need to say more? Why indeed. The problem, of course, is that none of us can get in on these deals. With investment minimums that run anywhere from $2M to $20M, these kind of returns are reserved for the big institutions and a few wealthy individuals. There is one way to buy into the Lee and Bain deals: the initial public offerings that both firms regularly kick out. [Boston Globe, Mar 4] The money made in such deals has to be recycled into new deals (these guys don't sit home and clip coupons). The drawback for raw start-up SBIR firms is that there so much money that the VCs can't invest it in small bites.

Boo-hoo, I want to propose a Phase 2 to BMDO but not only do I not have any venture capitalists to share the costs with BMDO, I could never find VCs interested in such an advanced technology. And besides, even if I could, they would steal my company. What can I do? The standard wail! Does BMDO demand cost-share? If by cost-share you mean private money developing government hardware, NO. If by cost-share you mean co-investment for a technology with a bright future for everyone including BMDO, MAYBE. BMDO wants proof of your technology's future far beyond your avid puffing. Every proposer loves his technology. Co-investment makes one convincing proof. In FY98 so far, BMDO has funded four Fast Tracks, for which co-investment is a must, out of nine awards. The other five MAY have co-investment but the published abstracts are too filled with pabulum to tell whether BMDO has actually drifted into regular DOD Phase 2s where any commercialization talk is just talk.

hold the champagne a nanosecond: Consider the curse of too much money. At first glance, this notion seems paradoxical. But the fundamentals of venture investing have changed dramatically in the last six years. With huge sums flowing into venture funds -- nearly $10B was committed nationally in 1997, compared with $3B in 1992 -- venture capitalists are bidding up the size of deals. Savvy entrepreneurs have cashed in, demanding huge valuations - and often getting them -- for promising but unproven ideas. Driven by the VC-blessed notion of capturing a niche by being the first, the founders not uncommonly spend their cash on marketing, building a well-paid executive team, or designing a product that misses what their customers need. .. For venture capitalists to complain that start-ups receive too much money is like New York Yankees' owner George Steinbrenner complaining that baseball players are paid too much. It raises the question of who's really responsible. [San Jose Mercury News, Feb 15] And The average size of an investment increased nearly 50 percent over the last four years - from $3.6M to $5.3M.

Venture Money Pot Swells
(Feb 11) Last year was another banner year for venture capital-backed companies as 592 Bay Area firms received $3.8 B of private equity financing. That was $1 billion, or 37 % more, than 531 local firms received in 1996, according to VentureOne, a San Francisco research firm. Nationwide, the picture was similar although the growth rate was less than what it was in the Bay Area. Venture capital firms invested $11.4 B of pension fund and other institutional money in 1,848 U.S. companies last year. That was 16 percent more than the $9.8B invested in 1,686 firms in 1996.... Information technology firms draw bulk of it [Peter Sinton, San Francisco Chronicle, Feb 11]

(Feb 9) Venture capitalists poured $122.2 million into up-and-coming Arizona companies last year, a 24% jump over the year before. Investors also completed more deals and boosted their average investment in Arizona companies over 1996, according to the year-end Money Tree Survey by Coopers & Lybrand. Twenty-six Arizona companies received venture financing in 1997, up from 24 the year before. The average investment also rose, to $4.7M from $4.1M. [Jane Larson, The Arizona Republic, Feb 6]

Year's Top Product
(Feb 10) Venture capital bonanza Silicon Valley got $3.66B in '97, a record that eclipsed the 1996 total by nearly 63%, according to the Mercury News/Price Waterhouse LLP Money Tree study. The quarterly venture capital survey found that just less than $982M was invested in local companies during the fourth quarter, following a strong trend of venture investing that has characterized the last five years. The increase between 1996 and 1997 -- $1.4B -- was alone greater than any year's total of Silicon Valley venture investing before 1995. The year's total was bigger than the annual sales of all but the top dozen Silicon Valley companies. [BY SCOTT HERHOLD, San Jose Mercury News, Feb 9] Now, what problem is SBIR solving? Jealousy from companies in Kentucky who don't want to compete in and with Silicon Valley or the other places where capital and technology meet regularly? Sounds like a case of seeking equality of results instead of equality of opportunity. When that principle is applied to race or gender, the business people go right up on the soapbox.

Last year's IPOs - 502 in total - numbered one-third fewer than the 1996 record. The money raised was also 32% less. "there were more deals than possibly could be priced."

Mass VC in Neutral
(Feb 6) Venture capital investing in young Massachusetts companies couldn't keep up its breakneck pace of growth in 1997. The actual change in last year's local venture capital investing varies slightly, depending on whose numbers you read. One survey says the level of new venture investments declined a bit last year, another says it grew moderately. But the trend is clear: Booming growth in local venture investments that roughly doubled over the two previous years couldn't be sustained. And that may be good news. Many venture capitalists said they needed a breather to absorb the new investments already added to their portfolios. ''The whole system is very close to capacity,'' said Rick Burnes, a principal at Charles River Ventures. ... Money isn't the issue. Venture firm executives said they don't have enough people to Money isn't the issue. Venture firm executives said they don't have enough people to keep up with an extended run of dramatic growth. keep up with an extended run of dramatic growth. [Steve Bailey & Steven Syre, Boston Globe, Feb 5]

Asia Hits IPOs
(Feb 5) The financial crisis in Asia is starting to hit the new issues market in the United States after two record-breaking years of initial public offerings. In the first month of this year, there were just 19 IPOs,down from 37 in January of last year, according to the IPO Monitor. "If you are selling products like semiconductor manufacturing equipment to the part of the world with economic problems, an IPO doesn't make a lot of sense," said Richard Shaffer, founder of Technologic Partners in New York. ... Quantum Epitaxial Designs (Bethlehem, PA)a., and Yanzhou Coal Mining of China also recently called off offerings. [P Sinton, San Francisco Chronicle, Feb 4] Only one other SBIR company is in the IPO piepleine - AstroPower - targeted to emerge in February. What's the good news? The SBIR advocates can again claim a shortage of capital.

VC Record 1997
(Feb 4) VCs bet a record $11.4B on young companies in 1997, says WSJ Feb 3 with $7B just in info-tech. Top getter in info tech was an SBIR firm E-Tek Dynamics (San Jose, CA). A principle that SBIR could adopt as a guidestar Even though many venture investments turn sour, the successful ones are so profitable that overall industry returns in a strong new-issues market have exceeded 40% in recent years. As a guide to what may happen in 1998, the VC funds last year brought in another $10.4B that has to be invested somewhere, and not in treasury bonds nor government services.

Another VC Record
(Jan 14) VCs raised $10.4B last year, a fourth higher than 1996 in 113 funds, up from 97 funds in 1996. Says Wall Street Journal Even first-time venture funds are flooded with capital. And if there's that much going into VC funds, imagine what's happening in angel country. What SBIR companies have to realize is that such money is for potentially big profit enterprises, not for sweet technology. What government has to realize is that with all that capital sloshing around, any company that can't get some should be viewed with economic suspicion and be forced to demonstrate a big-profit devotion of some type.

Two alumni of KPMG Peat Marwick, the giant accounting firm, are organizing a new venture capital fund that aspires to raise $100M. That money would be invested in life science businesses such as biotechnology and medical devices firms - with a big emphasis on companies based in the Triangle. Century Capital Ventures plans to establish offices in the Triangle and Princeton, N.J., with possibly a third office in San Diego, said David LaVance, one of the fund's two full-time general partners. [DAVID RANII, Raleigh News-Observer, Jan 15]

Wanna BE a VC, Rather than Genuflecting to Them?
(Jan 8) Step up; the Web has an opportunity. Warning; VC-ing only looks easy. A Santa Fe-based venture capital firm's newest fund could pave the way for paper free, high-tech investments in the future. Technology Funding Corp. will offer shares of its newest fund, Venture Capital VI, to investors starting Tuesday through the company's Web site, The company hopes to raise $100 million through the online offering, said Charles Kokesh, president. It will take 40,000 to 50,000 investors to fully fund Venture Capital VI, he said. In order to get that amount of investors, the Web site will have to attract at least 4 million people. Technology Funding, which invests in emerging growth companies in information technology, industrial automation and biomedical industries, is the first venture company to make an online offering, said Kokesh. [Albuquerque Journal, Jan 6]


Last year, 629 IPOs came out, second only to 1996, valued at $39B. At year's end they were up 19% over the issue price, although for the outsider, they were up only 7.2% from the second day's trading. [facts from Wall Street Journal, Jan 2] If the stock market was like a roller coaster during much of 1997, investing in technology stocks was a terror ride.{S McGee, Wall Street Journal, Jan 2] Fidelity Select Technology Fund, said that through September his $500 million technology fund had booked gains of 45%. But by the end of the year, all but about 10 percent of the gain had been eroded. [Dallas Morning News, Jan 2]

Intel InsideIntel has quietly invested a chunk of its $8B cash pile into scores of start-up companies in fledgling industries ranging from online musical concerts to space-age graphics. The world's largest semiconductor company has become a leading force in Silicon Valley's venture capital community over the past several years, making at least $500 million in investments in more than 100 companies. [Reuters, reprinted Minneapolis Star-Tribune, Dec 30] Listen for the knock.

Doctor Angel. it is the mix of highly organized financial infrastructure and relative craziness in the US that's made us so successful. The major banks, the VCs on Sand Hill Road, the doctors and dentists willing to invest in harebrained start-ups - that doesn't happen in a lot of places. [Tom Peters, Wired, Dec 97] So, find a rich doctor (a dedicated doctor hasn't time to spend it anyway) and start a company with your new technology. Get a market reality check from a VC to see whether the doctor will ever get any return. Your warm feeling about the good you've done humanity with your science won't help the doctor.

Some $12B-worth of IPOs are already in the pipeline for the coming year or so, as the vast amount of venture capital invested in recent years seeks a lucrative exit.

When Boston Capital reviewed 181 IPOs by Massachusetts companies since 1992, it found lousy results. ... a handful of dream investments, stock-market rockets like CMG Information Systems. CMG, which invests in Internet ventures, is up a staggering 973% since it went public in 1994. The second most success, Natural Microsystems, has soared 892%. But the majority have been much more ordinary. Half have lost money and a few unqualified disasters. An investor who bought into all 181 Massachusetts IPOs would have earned a mere 37 percent return. But the results would have been much more unimpressive if the same investor missed out on just a few of the blockbuster IPOs like CMG, Natural Microsystems, and Security Dynamics Technologies (up 797%). [Steve Bailey, Boston Globe, Dec 10]

The time is approaching, some venture capitalists say, when they could make a living by focusing on Arizona. ... Despite the general optimism, one thing is clear: Arizona needs more in-state venture capital funds. Many of the funds represented at the conference were from out of state, but as the state's stable of successful entrepreneurs grows, investors likely will want to be closer to the action. [Naaman Nickell, Arizona Republic, Dec 7]

Venture Firms See Profits Softening
(Nov 20) VC firms have been enjoying 40% annual returns on their investments in startup companies and top partners more than doubled their compensation last year. But those days could be over. Venture capitalists are now starting to pay as much as 30% more for stakes in emerging growth companies. And they fear their profits won't be as high as they were in the past if the initial public offerings market softens. Dave Witherow, president of VentureOne Corp., a San Francisco research firm, said that he expects to see ``some compression in returns'' for venture capital firms and their pension fund and other institutional investors. ``The question,' he said, ``is whether there will be a soft landing or a crash.'' Witherow said that it became clear in the third quarter that venture firms ``are paying more for their stakes'' in emerging growth companies. According to his firm, the median valuation of startup companies was $20M. That was a third higher than the $15 million median valuation in the previous three-month period and more than 50% higher than the $13M median valuation for venture-backed companies last year. In certain hot information technology sectors like networking and Internet companies, valuations are often double what they were just a few months ago. Valuations are going up because entrepreneurs are demanding it and because there are plenty of institutional investors and large companies ready to pour money into promising new companies. Venture capitalists make money when the companies they invest in sell stock to the public or are acquired. But the IPO market is slowing down from last year's record pace and venture firms could have trouble passing on their higher investment costs. Venture-backed companies raised $4.2B in their IPOs in the first nine months of this year compared to $9.8B in the same period last year. Despite concerns about declining fortunes, the venture capital industry is still robust by any measures. Funds invested $8.4 billion through September of this year, compared to $7.5B in all of 1996 and they have more funds to invest than ever before. Venture firms raised $6.1B in the first nine months compared to $6.6 B during all of last year. [Peter Sinton, San Francisco Chronicle, Nov 20] Return to Index

investors haven't given up on finding the next Netscape among new high-tech issues. Bankers say that some marginal deals may not get done now. But there were plenty of buyers on Oct. 29 when MMC Networks Inc., a Sunnyvale (Calif.)-based startup that makes powerful networking chips, went public. It opened at $11 a share on Oct. 29 and closed at 21 3/8. [Gary McWilliams, Ira Sager, Linda Himelstein, Business Week, Nov 10]

Inc 500 List
(Oct 31) Hardly an SBIR firm on Inc's 500 annual list. TPL (Albuquerque, NM) and E-Tek Dynamics (Palo Alto, CA). Let's see if the federal agencies or the SBA or the Small Business Technology Coalition have any excuses on how few SBIR companies make such honor lists. Scan the list.

VCs Invest$3B
(Oct 31) VCs invested a record $3B in 646 companies in the third quarter, on the way to a record $12B for the year, says Coopers & Lybrand. Now again, why do startups with market prospects need SBIR?

Yet Another $24M
(Nov 6)Cambridge Technology Partners has formed a new venture fund with committed capital of $24 million. The new limited-partnership fund, Cambridge Technology Capital Fund I, will invest in expansion-stage private firms that provide products and services likely to be of interest to the consultant's customers. [Boston Globe, Nov 5]


It will take more than a 7.2% slide on Wall Street to stop venture capitalists from funding all those startup firms that have been fueling the Bay Area economy. ``A one-day drop doesn't mean anything, particularly when it's in single digits,'' said Dick Kramlich of New Enterprise Associates, a Menlo Park venture firm. Still, startups and VCs alike will be waiting to see whether the Dow rebounds from yesterday's 554-point drop or continues to slide. Kramlich explained why. Venture firms raise money from pension funds and other long-term investors. They don't expect to reap profits until startups go public. [TOM ABATE,SF Chronicle, Oct 28] It did rebound. Politicians have spent so much of their time helping producer interest groups that they've forgotten the best argument for free trade - that it's a tremendous boon to consumers. [J Glassman, Washington Post, Oct 28] SBIR politics play the same classic way. The present beneficiaries are in effect the producer groups with tangible interests to protect and the new start-up companies have no voice. Concentrated benefit and diffused cost. Congress will NOT act against the present politically organized beneficiaries to open the playing field for more new competitors. Not only do new start-up have to fight big companies, they have to fight the entrenched top SBIR winners who have a cozy deal with the federal funding agencies, abetted by producer groups like the Small Business Technology Coalition.


Six SoCal Angels
(Oct 27) Six angels form the CEO Emeritus Club in Orange County. They want to help lead Southern California into the high-tech future through in infant business ventures. Roger Johnson, the retired chief executive of Western Digital Corp, AST Research Inc. co-founders Safi Qureshey and Albert Wong; and Carmelo J. Santoro, Gary Liebl and Isaac "Zak" Kong. Says Yet, says Liebl, "in Southern California the road is littered with the bodies of great potential companies." Chuck Martin, general partner at the Newport Beach VC firm Enterprise Partners, said that many firms he sees are "too raw, too underdeveloped." Venture funds typically invest in young companies but require complete management teams, business plans and marketing strategies. But a venture capitalist would certainly take notice of the involvement of someone like Qureshey. [Facts from Los Angeles Times, Oct 26]
Now if these angels and the SBIR would just combine to help marketable future technology. Sadly, the values of angels and SBIR diverge, leaving only their words to sound alike. SBIR funds disembodied technology and angels fund promising businesses. SBIR assumes that technology will find its own way into the market, and angels know better. SBIR might adopt a policy that any technology that cannot attract private finance after say $250K, is kidding itself about its future but that any technology that can attract these angels or their like. But that if it can attract interest, then it can have more SBIR money. Next step would be to get the Army or Navy to see such a policy as in its interest. Hah!Return to Index

Seller's Market for Entrepreneurs. The median value that venture investors placed on stakes they acquired jumped 30% last year. [M Selz, Wall Street Journal, Oct 21] There was a wide variance though among industries: health-care-services up 76% but medical-devices up only 1%. And in 1997 the trend continues with a record $4.3B raised in the first half. In such a world, market-failure programs like SBIR lose their economic justification. No matter, their political appeal will support them.

Also in Texas, a gaggle of high-tech firms will present their stories at A VC seminar. Not unusual, nor is it unusual that the ones looking for real money do not come to government. None is a DOD SBIR awardee, for example. 4D Systems, Alliance Systems Inc, Beyond Conception Inc., Global Converging Technologies, Heads Up Technologies, NetNumina Solutions Inc., Red Ant Inc, Roatan Medical Technologies Inc, Newgen Group Inc, Whole Village Technology Inc.

Cincinnati VC. Jack Wyant, founder of the city's first venture capital fund in 1992, says VC money in Cincinnati has almost doubled in the last year to $250M where Cincinnati's venture capital pool for its population size is proportional to that of the nation, which has a total of $40 billion in venture funds. In 1990, there were 657 venture capital firms nationwide with a combined $30 billion. Close by in Cleveland, venture capital was thriving as well, with a pool of $600 million. In Cincinnati, there were no venture capital firms. "We were the largest city in the U.S. with no venture capital fund,". [U Miller, Cincinnati Enquirer, Sep 17]

According to Securities Data Co there have been 422 IPOs so far this year. By comparison, there were 866 all of last year. Among technology companies, the falloff has been even steeper, according to data from Morgan Stanley & Co. Morgan tracks 56 technology IPOs through this year's first nine months, compared with 109 for the same period last year. But recent IPOs have fared better with investors. In the third quarter of 1996, nearly half of IPOs were offered to the public at a lower price than the middle of the range their underwriters had estimated weeks earlier. In this year's third quarter, four of every five IPOs have fetched higher prices than underwriters expected. [San Jose Mercury, Oct 3]

A Start Isn't Enough``A good amount of venture capital is flowing into Internet businesses for early-round financing during the risk period, but people are having a hard time securing second-round financing for the critical-mass stage,'' said Joe Kraus, co-founder of Excite. ``There now is a `Show me the money' attitude.'' ... ``You will see attrition due to some ideas, business models and management that simply don't work,'' said Halsey Minor, chairman and chief executive of CNet, Said Richard Shaffer, editor of Venture Finance newsletter. ``If (startups) don't meet their numbers and get out of the gate, you shoot the horse.'' ... investors sank $1.05B in high-tech companies during the first three months of 1996, compared with the $687M in the same quarter a year ago. ... [Jon Swartz, San Francisco Chronicle, Sep 13] Well, of course, there's not enough money to finance all startups to completion, even the good ones. In government-ese, we have downselect. Government programs like SBIR can never do more that the first dose of capital for an innovation and then the innovations has to be sold to willing investors. Which is why government is shooting blind (ready, fire, aim) when it doesn't require private investment in at least the late stages of a Phase 2. And rigidly fixing the amount of Phase 2 is a sign that not much thinking is going on about where to end government support. Ah well, formulas are so much more comfy than thinking.

(Sep 17) Texas Instruments calls it one the largest VC funds for a single technology as it announces a $100M VC fund for digital signal processing. [WSJ, Sep 17] Prospective investees can e-mail TI Ventures. Now all those SBIR proposals for another improvement in some aspect of a DSP chip that would then theoretically be sold to TI can be put to the acid test. The ones that still don't sell will presumably return to tell Congress that SBIR that private funding isn't available for innovation. Expect a long line at the return window although government would be advised to demand evidence of having been rejected by the TI fund for a reason that then merits government succor. If TI rejects it because it won't sell, even if it works, government should reject investing SBIR in it. Don't worry, contract R&D houses; only one government agency would ask such a question - BMDO.


Angels in the Heartland, Too
Angels in Atlanta.In the background of Atlanta's technology community, a group of industry mavens have come together to invest time and money in burgeoning companies. Originally conceived two years ago by Kilpatrick Stockton attorney Martin Tilson, the group, which has no formal name or standing, is composed of a who's who of former and current technology and telecommunications leaders in the Atlanta area. Their names are well-known about town: Said Mohammadioun, Stephen Raville, Gene Gabbard, Edward Croft, Bert Nordin. These men not only have made their companies successful, but have made money themselves; they use the monthly meetings as an opportunity to invest their own funds and share their acumen. Investments range from $50,000 to several million. ... "We don't have newsletters or a dues structure; we're not a club," Tilson said. "We're just a group of people that like to look at deals together." [Atlanta Business Journal, Sep 15] Think the SBA's ACE-Net will help with this group? Different Angels in KC Suzanne King Staff Writer A California software company that was looking for investors found them last year, not in Silicon Valley, where technology venture capitalists practically grow on trees, but in Kansas City, where they are few and far between. In March 1996, 25 Johnson County business people plunked down a combined $750,000 to start Stellar Solutions Inc. in the Silicon Valley. In August, the company began selling its software management product, ProductionAssistant, and it plans to go public by late next year. "When these guys said they could raise the money in the Midwest, I said, `OK, we'll try it,'" said Channler Drawdy, Stellar Solutions' president and CEO, "but I was skeptical enough that I was still pursuing three other sources." And, according to many people in Kansas City who have tried unsuccessfully to find startup capital for technology companies here, Drawdy should have been skeptical. Kansas Citians are cautious about investing in technology, said Susan Catts, president of the Silicon Prairie Technology Association. "There's no network that makes them readily available. But, one by one, Stellar Solutions found 25 investors who began sending money to the company just a month after the first investor meeting in February 1996. Eventually, the investors grew to 300, and their stake has grown to $3 million. Half of that stake came from Kansas City. [Kansas City Business Journal, Sep 15]

IPO Mania If the plan by Schwab and the other discount brokers to make IPOs available to the public isn't the sign of a market top, then Renaissance Capital's new IPO Fund certainly must be. The Greenwich, Conn.-based research and money management firm, which specializes in IPOs, has quietly registered the no-load mutual fund -- believed to be invested exclusively in IPOs. Renaissance, which sells research to professional money managers, has also started making its research reports available to individuals via its new (though clunky) Web site. [San Francisco Chronicle, Sep 12]


Two New VC Funds

Tiny Minnesota VC Fund There they sit, eating deli sandwiches while the sun bounces off Lake Minnetonka, amicably discussing which young Minnesota companies to bless with cash. The three are Scott Drill, formerly of Varitronic Systems Inc.; Mac Lewis, previously of Computer Network Technology Corp., and Dennis Anderson, who runs his own headhunting firm in Wayzata. This year they formed a venture capital boutique: Minnesota Management Partners. For their first fund, they've raised $4.6 million, a tiny dot on the venture capital landscape. .. Thus far they've made 11 investments in 10 companies totaling $1.9M. Their method is to invest in the companies of CEOs they know personally, and they know a lot of CEOs in town. [Minneapolis Star Tribune, Aug 27] Anderson has talked at national SBIR conferences on recruiting. Bigger European Fund The InteruniversitiesMicroelectronics Center (IMEC), Europe's leading research center for microelectronics, is helping to establish a major venture-capital fund devoted to IT. The Flanders government and the IMEC are putting up seed capital, and the fund is expected to back several electronics start-ups in Flanders and Europe. The fund, when full, is expected to have $75 million to $100 million. Venture-capital funding exists in Europe, but has shied away from microelectronics and funding start-ups; they're considered to be too risky. The IMEC fund will be one of the first European funds devoted to IT. The experienced fund management team is from EuroVentures B.V., based in the Netherlands. EuroVentures was a partnership formed in the mid-1980s by major European systems companies including Philips, Olivetti and Fiat. It has presided over funds in 11 countries in Europe. [P Clarke, Electrical Engineering Times, on TechWeb Aug 21] One smart move in what could well be a flop that can't compete with Silicon Valley is letting the entrepreneurial Dutch run it. If Flanders steers the funds towards home, or IMEC steers them towards its Limburg home, the fund will have the same problem that state funds (and SBIR proposals) have in the US - too many objectives. Return to Index


San Diego Also Rolls in VC
(Aug 25) Venture capital investments in start-up companies hit a record high in San Diego in 2Q 1997, reflecting a surge in such funding nationwide. Venture capital firms pumped a total of $128M into 20 local companies, according to a survey by Price Waterhouse. It was the most ever raised ... . Six local biotechs received slightly more than $53M, or about 35% of the total investment in biotechnology nationwide. Such figures suggest it's a great time to be an entrepreneur. [San Diego Union Tribune, Aug 22]
Pacific Northwest. Most venture capital comes to the Pacific Northwest from out of state, says Thomas W. Haines, [Seattle Times, Aug 23]. More than two-thirds of 37 Northwest venture-capital deals reported during the first half of 1997 came from CA, MA, CT, CO. During the first half of this year, venture investment in Washington totaled $109.2 million, compared with $140.2 million in 1996. Oregon companies landed $33.98 million, up from $24.1 million.Return to Index
And the government will help entrepreneurs with SBIR get ready for VC investment. Something like 20% of the $1B a year goes to market-competitive entrepreneurs. Don't ask about the other 80%.


Two views of the latest VC numbers
Midwest View. Polish off that business plan. If you've ever wanted to start a companyand finance it with other people's money, now may be the time.Both nationally and locally, entrepreneurs are finding it easier than ever to attract funds. The Price Waterhouse National Venture Capital Survey reports that in the second quarter 1997, venture capital investments hit an all-time record of $3.18B, a 13% jump from the previous record set in the second quarter 1996. Local figures also were impressive. Twenty-three Minnesota firms received $69M in the second quarter. That level of activity has not been seen since early 1995, when the Minnesota firms attracted $77M in one quarter. [J Barshay, Minneapolis Star Tribune, Aug 20] New England ViewWall Street's love affair with initial public offerings, which blossomed in the early 1990s, is just a fading memory today. In the first six months of 1997, there were 60 venture capital-backed IPOs, which raised $1.87B from investors. By contrast, last year's boom yielded 148 initial offerings in the first half, which raised a record $7.59B, according to Venture Capital Journal's August issue. The dramatic drop reflects investor concerns that the stock prices of many companies have failed to appreciate above their IPO levels. Amid last year's frenzy, a record 276 companies launched IPOs, up from 183 in 1995 and 143 in 1994. [Boston Globe, Aug 20]
Normal Government View Uh, what's venture capital and why do we care? Our mission is to spend our R&D appropriations however the bosses say. Those little companies cannot do much anyway. What we can do is to spend the SBIR money as closely to our usual methods as possible. Commercial isn't our mission and thus we don't much care whether the company succeeds as a company. We'll just pretend what we fund can be commercialized. They wanna hear commercialization, we'll say it , even for mining the moon for solar cell material. Visionary Government View If we put enough money into the new technologies to attract those VCs to productize the results, we can buy lots of that technology later without investing much in between. But we'll have to put the money into companies that will grow way beyond the people we will support temporarily. That means hooking up with the VCs to help vet the companies and the technology. We win, the VCs win, and companies win. (The bad news: only BMDO thinks that way and it has only 5% of the SBIR money.)

Startups on the Rise:
(Aug 20) Venture capital for new firms at impressive rate Venture capital financing of Bay Area startups continued at an impressive pace in the second quarter when it hit $878M, the largest investment in emerging growth companies since a record $906M was raised in the like quarter a year ago. According to VentureOne, 137 local companies received more than one-third of the $2.56B pumped into 408 venture-backed U.S. companies in the past quarter. Venture capital companies continued to invest in tiny products, and their choices were not restricted to just electronic chips and communications gear....Software, communications and other information technology companies received more than $650M, or about 75% of local venture dollars. Meanwhile, venture capital firms are flush with cash. Venture Capital Journal reports that VC firms raised $4.5B from pension and endowment funds and other institutional investors in the first half of 1997. That is more than double the $2B raised in the same period last year and is on pace to set a fund-raising record for the third straight year. Another major trend in the venture capital business is that big companies are investing heavily, 26% of all the funds received by venture capital firms, up from 18% last year and just 2% in 1995. Venture capital investors in recent years have achieved annual returns of 50, 60, 70% and sometimes even triple-digit returns.[ Peter Sinton, San Francisco Chronicle, Aug 19] Now, what was that cry of needing SBIR to make up for low VC investment? Oh, but we need it to retain control of our companies. And how did that get to be a government role? Where are those free-market Republicans? (getting government out of the boardrooms and into the bedrooms?) Ah well, rationalization of a subsidy suits lawmakers and beneficiaries and second level feeders, like grey-head consultants.

VC Up 60% in Capital Area
(Aug 13) VC investments continued to roll into the Washington area in the second quarter, nearly double the year before, more than $110 million during the quarter, most of it coming from established venture capital funds in Baltimore, Boston and Silicon Valley. As expected, more than 60 percent of that money went to technology companies. Investors continue to shop around for the next Cinderella story [Washington Business Journal, Aug 11] Money coming into politicians wasn't counted in this VC investment survey.

Falling Biotech Investment
(Aug 8) The nation's biotechnology companies raised whopping amounts of cash during the first half of 1997, but analysts predict this year's activity will pale in comparison to a record-breaking 1996. Over the past six months, U.S. biotech firms have raised $1.8 billion in public and private offerings, according to Recombinant Capital, a San Francisco-based research firm. It's a far cry from the $5.2 billion raised during the same period last year. Analysts said investment in biotechnology has, and will continue to be, cyclical. Historically, much of the injection has come from investors who have pulled their money out of technology stocks. So far this year, biotech companies have raised $1.1 billion in public offerings and $695 million from private sources. [Pete Barlas, [Silicon Valley] Business Journal, Aug 4]

IPOs Feel Letdown from Bankers A survey of technology companies that went public in 1996 found that a relationship with an investment bank was like a romance that loses its spark after the wedding. Once the bankers escorted the companies through their initial public offerings, the most common complaint of company chief executives and financial officers was that bankers neglected to provide follow-up after the deal, according to a survey by Stapleton Communications, an investor relations firm in Mountain View, CA. .. Among the survey's other findings were that companies chose their lead underwriters based more on the reputation of the bank's industry research team than on the reputations of the bankers themselves. In addition, companies interviewed with an average of eight different banks -- some saw as many as 19 different banks - before deciding on a lead underwriter and an underwriting team. [E Wasserman, San Jose Mercury News, Aug 5] The bankers mostly said they did support the companies afterwards, but certainly not the way they did during the IPO. But wait! What do companies expect of the matchmaker after the marriage ceremony?

VC Rolled in Second Quarter
(Jul 29) Venture capitalists invested a record $3.1 billion in U.S. companies in the second quarter, says Coopers & Lybrand. The investments in 667 American companies boosted the total for the first half of 1997 to a record $5.5 billion. Info-tech companies accounted for half the number and 45% of the dollar amount invested in emerging growth companies. Venture-capital firms made 17% more than last year. California received $1.1 billion of the second-quarter venture capital funding, followed by Massachusetts, which collected $298 million. [LATimes July 29] Is such investment an argument against of for SBIR? It argues against the need for massive government aid to start-up technology and it argues for SBIR's doing the early financing of new technology that can attract these VCs as the technology matures. AND if 1978 repeats, the VCs should be taking in even more capital to invest than ever before by far. The VCs do say that the CG reduction of 1978 exploded open what was a minor industry s they argue for lower CG taxes so they can keep even more of the wealth they would have acquired under the present rules. Will the republicans be found to be just paying off their friends as they discover that a further CG tax reduction induces no more VC investment. OK, Republicans, show some economic consistency: as you open incentives for VC investment, tackle the SBIR subsidy as no longer needed!

IPO's Back in Vogue
(Jul28) This week's 15 IPOs add to a big July total of 41 with first day gains averaging 17.6% best since May 1996, says Wall Street Journal's Deborah Lohse, Jul 28. No SBIR companies on the horizon for public offerings, - one, just one, measure of government R&D world's attitude toward commercialization.

Which Silicon Valley fund has invested about $500M in 100 high-tech small firms in the past three years? Intel. Likewise have Microsoft ($440M in 22 firms), Cisco ($100M in 15 firms), and Softbank ($350M in 55 firms). [The Economist, July 12] So, then, why is SBIR needed? Because somebody has to supply jobs for the also-rans.

Less Venture Money? Steve Kaufman worries that the takeover of investment banking firms by commercial banks will stem the flow of venture money into new small ventures. [San Jose Mercury, Jul 6]. Needless worry? If you believe in market forces, yes, needless. The departure of the biggest IBs, like Robertson Stephens and Hambrecht&Quist, into larger transactions (for management efficiency) will only open the field to new people wanting to bet on fledgling ventures. The big banks will note that the ROI from the IBs will decline as they go into ordinary financing. They won't get 42% a year from discounting accounts receivable. Kaufman ignores the economic laws that lead to, for example, drug traffic: where a demand exists, a supply will rise to satisfy it. Not even the government, with all its politicians' posturing against sin, can repeal that economic law.

VCs Made Only 42% Last Year
(Jul 1) Venture capital investments returned only 42.1% in 1996, down from 47.4% in 1995, says Cambridge Associates. [Wall Street Journal, Jul 1]. Such returns will keep the rich coming for a dip in the VC pools, since there's no such concept in America as too rich.

Venture Investments Still Rolling
(Jun 26). Venture investments for the first quarter 97 exceeded even the first quarter 96 which was a record year. Venture-backed investments in the first quarter of 1997 increased 5% over the first quarter of 1996 according to the Price Waterhouse National Venture Capital Survey. The first quarter totaled $2.34 billion compared to $2.22 billion in the same period a year ago. Venture capital investments, excluding buy-outs and IPOs (initial public offerings), came to $2.14 billion in the first quarter of 1997. Venture-backed investments in the first quarter of 1997 increased 5% over the first quarter of 1996 according to the Price Waterhouse National Venture Capital Survey. The first quarter totaled $2.34 billion compared to $2.22 billion in the same period a year ago. Venture capital investments, excluding buy-outs and IPOs (initial public offerings), came to $2.14 billion in the first quarter of 1997. Venture-backed investments in the first quarter of 1997 increased 5% over the first quarter of 1996 according to the Price Waterhouse National Venture Capital Survey. The first quarter totaled $2.34 billion compared to $2.22 billion in the same period a year ago. Venture capital investments, excluding buy-outs and IPOs (initial public offerings), came to $2.14 billion in the first quarter of 1997. Venture-backed investments in the first quarter of 1997 increased 5% over the first quarter of 1996 according to the Price Waterhouse National Venture Capital Survey. The first quarter totaled $2.34 billion compared to $2.22 billion in the same period a year ago. Venture capital investments, excluding buy-outs and IPOs (initial public offerings), came to $2.14 billion in the first quarter of 1997. Venture-backed investments in the first quarter of 1997 increased 5% over the first quarter of 1996 according to the Price Waterhouse National Venture Capital Survey. The first quarter totaled $2.34 billion compared to $2.22 billion in the same period a year ago. Venture capital investments, excluding buy-outs and IPOs (initial public offerings), came to $2.14 billion in the first quarter of 1997. Venture-backed investments in the first quarter of 1997 increased 5% over the first quarter of 1996 according to the Price Waterhouse National Venture Capital Survey. The first quarter totaled $2.34 billion compared to $2.22 billion in the same period a year ago. Venture capital investments, excluding buy-outs and IPOs (initial public offerings), came to $2.14 billion in the first quarter of 1997. Venture-backed investments in the first quarter of 1997 increased 5% over the first quarter of 1996 according to the Price Waterhouse National Venture Capital Survey. The first quarter totaled $2.34 billion compared to $2.22 billion in the same period a year ago. Venture capital investments, excluding buy-outs and IPOs (initial public offerings), came to $2.14 billion in the first quarter of 1997.. But no amount of venture investment will silence the boo-birds who don't get their dreams funded and then cry to government for succor. They will bemoan the 95% of "propositions" that don't get funded, from me-too software to moon mining.

Some New Business Angels
(Jun 25) Six new age business angels appeared in Silicon Valley dishing out money in titbits under $1M. Aspen Ventures ($45M), Novus Ventures ($13M), Tech Farm ($35M), The Band of Angels (77 members have $21M), Interactive Minds ($manyM), New Vista Capital ($10M+$40M). [San Jose Mercury, Jun 9] A hybrid between VCs and your friendly neighborhood millionaire.

Once again we learn that IPOs almost always make rotten investments. [4753 IPOs 1970-1990] returned an average of 3% over the five year periods measured compared with 11.3% for the S&P 500. Forbes [1985] told "Why new issues are lousy investments" .. only 40% were up after ten years. .. Why? There is an impressive and growing body of evidence that people aware of bad odds still play them. D Dreman, Forbes, Jun 2

The astonishing $5.9B in venture funding that flooded technology startups last year shows little sign of drying up. On the contrary, competition for the few good ideas that need funding in any year has driven up preoffering valuations. Going Public 1997, suppl to The Red Herring

Raise Money on the Web?
(Jun 16) A seminar in a nice place. Connect, The UCSD Program in Technology and Entrepreneurship, Friday, June 27, 1997, 7:30 - 11:00 A.M., Sheraton Grande Torrey Pines, La Jolla, CA This seminar will address some of the issues involved in raising money on the Internet. Speakers include Jere Glover, Chief Counsel of SBA; Terry Bibbens, Entrepreneur in Residence of SBA; Odile Legeay, President of Freewing Aerial Robotics Corp.; Carlos Heredia of Baker & McKenzie; Clay Womack, President and CEO of Direct Stock Market; Mark Perlmutter, President and CEO of Direct IPO; and Gary Wong of Wedbush Morgan. For some other events on Webbing your company's financing, visit Direct Stock Market.

Know anyone who got Netscape at the issue price? Want a piece of lots of IPOs? A new mutual fund offers the chance, says Business Week (May 19) Renaissance IPO Fund. (Note: Carl Nelson Consulting does NOT offer investment advice.)

Can't Find Capital? Weiss, Peck & Greer Venture Partners announced that it has raised $205 million from institutional investors for its fourth venture capital fund. With offices in San Francisco and Menlo Park, the fund plans to invest 70 percent in early and expansion-stage information technology firms and 30 percent in health sciences firms. [SF Chronicle May 22]

IPOs Not Dead
(May 16). Two companies doing well in IPO derby. Rambus, another semiconductor company, went out at $12 and shot up to $30 Wednesday. Amazon, the Internet bookstore, raised its planned offer size again to a $350M market cap even as Barnes&Noble says "Me, Too". [facts from IPO Central. Return to Index

Venture-Capital Input Remains Flat as Investors Balk at Private-Firm Prices.
(May 13) Says headline, WSJ, May 6. The companies think it is still a seller's market. VCs have lots of money (raised $6.6B last year) to invest but not at prices that endanger a profit in the public market. Danger sign for the VCs: the Russell 2000, which includes companies valued between $100m and $1bn, had failed to outperform the S&P 500 since the beginning of the year. After a year in which the smaller companies have lagged the larger by some 20%... Research by Prudential suggests that the performance gap between the S&P 500 and the Russell 2000 in the year to April was the second worst in the history of the index. [Financial Times, May 12, 1997] And as long as the government hands out free money in programs like SBIR, companies can defer the day of reckoning. SBIR could be a giant fraction of the money being invested in young ideas (VC + angel + SBIR) if most of SBIR $1.2B were so invested (instead of so little). Ah well, one should not expect bureaucrats to think in the long term even though their jobs are secure and no penalty for failing. They focus instead on the technology du jour to please a boss (of which they have many) who may affect their real source of power - next year's budget.

Top-Notch Start-Ups Get Picky About Their Partners: Promising Ventures Can Afford to Look for Connections, Not Just Cash. [Wall Street Journal, May 7, 1997] Lots of headline to emphasize that VC money is flowing faster than VCs can find quality investments. SBIR companies, though, mainly don't see such a world. They have mostly unmarketable technology compounded by a fixation for control. VCs typically fit between angel money which doesn't have deep financial connections and management once the high technical risk has been resolved, and before corporations only want to discuss delivery schedules.

there is plenty of venture money available for start-up companies. [Anne Winblad] believes this might be the best time in history of venture capital for entrepreneurs seeking funding. ... Hummer Winblad was created in 1989 as the first VC fund exclusively for software companies. . Alley Cat News, Apr97. But meanwhile be sure to tell government how VCs hate innovation if you want SBIR instead of real money.

Of the top 96 IPOs in the world of the San Francisco Chronicle (Apr 28, 1997), 60% are now (Mar 31, 97) below the IPO price. Included are companies going public Jan 1, 96 - Feb 2, 97. None got there with substantial SBIR.

New York high-techers have a voice,too. AlleyCat News: Investment Opportunities in Silicon Alley wants last year's $660M of VC investment in metro NY to grow. $1900 per year subscription (hey, even coffee is expensive in Manhattan where the first $9 movie house is packing them in). The cooler Gothamites can read The Silicon Alley Reporter for $90.

IPO Market Soggy Within the past month, not a single IPO has been priced above its filing range, the first time that has happened since January 1991. [S McGee, Wall Street Journal, Apr 21, 1997]

Start-ups are competing against each other for scarce management talent, engineers, and even office space - at a time when products must be developed faster, and young companies must become fully staffed, mature companies sooner. S Mehta, Wall Street Journal, Apr 15,1997. So, with the start-up economy ablaze, government adds fuel to the fire with more SBIR to fix a presumed under-investment.

Four will go bankrupt, six will stay in business but lose money, six will make a modest return, three will do well and one will scoop the jackpot. Tim Draper, VC, quoted in The Economist, Mar29, 1997

You just have to be self-confident. Hell in Silicon Valley, you can raise $10 million having breakfast at Buck's [restaurant] in Woodside. There is so much money running around, and what are these people going to invest it in? T-bills? AT&T stock? Are you kidding? Tom Siebel, quoted by M Malone, "Angels in the Valley" Upside, Apr97

"One thing I learned over the years is that, at least in software, there is no excuse for getting venture capital. Hardware, biotech, maybe. But in software, you can sell an idea before the product exists. I remember Oracle's Larry Ellison giving a speech a few years back in which he compared venture-capital money to drugs and urged everyone to 'Just say no'. T Siebel, quoted by M Malone, "Angels in the Valley" Upside, Apr97. Sounds like: "Government needs software, but software doesn't need government"? That fellow in Houston may be still smarting over rejection of his software SBIR

Why They Keep ComingThe largest holder of Ciena (Savage, MD) at the end of Day One trading had stock worth $438M. Sevin Rosen's investment? $5.3M.

Please Ignore Us,says Silicon Valley to Washington. VC Tim Draper says SV regales at being 2500 miles away from politicians and regulators who want to help. A bureaucrat lives to regulate. Fairness is very important to him. Rule making is very important to him. Justifying his existence is very important to him. The success of your industry, however, is not very important to him.... If Washington doesn't understand my business, I'd like it to stay that way." [Wall Street Journal, Mar 4] Where Draper differs from the usual SBIR applicant/user is that the SBIR guy needs (wants) the government money. What's the same is that the government doesn't care about the business success of either.

VCs Return 63.5% to Investors
(Mar 4) Venture Economics Information Services says VCs returned 63.5% to their investors in the year ended Sep 30, 1996. [WSJ Mar3] That'll keep the capital flowing out of the piggies' banks into start-up companies. Never mind, small companies will still get a $1B handout from SBIR on the premise that there's not enough capital for start-up ideas and companies.

In the world today, there's plenty of technology, plenty of entrepreneurs, plenty of money, plenty of venture capital. What's in short supply is great teams. [John Doerr (KPCB), Fast Company, FM97]. Not to worry, though, SBIR fans, it is still politically correct to hand subsidies to high tech firms to advance American competitiveness.

New England Up, Minnesota Down
(Feb 24) Not a football result. Sixty-two New England firms raised $2.2B in IPOs in 1996, says a Price Waterhouse survey. Up from $1.8B in 1995. [Boston Globe, Feb 23] Not so bright in Minnesota where VC investment dropped about 20% from 1995. [Minneapolis Star Tribune, Feb 20]

We receive and read 2500 plans per year. We meet with at least 100 teams a year. We invest in about 25. [J Doerr, KPCB, Fast Company, FM97]. Does that make venture capital competitive? Should government declare too intense competition and rescue the 75 who got a meeting but no money, or the 2400 who didn't even get a meeting? What's the likelihood that the rescued would make a going competitive concern after a small dole was exhausted? If 1000 18-year olds show up for a San Francisco Giants tryout, of whom ten can hit even a minor league curveball, should the government set up a league for the 990 in the name of American sports competitiveness? For answers look to the market capitalization of the 25 funded by Doerr and of the companies funded by SBIR. Over the years Doerr funded the startup of Sun, Compaq, Lotus, Intuit, Genentech, Millenium, Netscape, and Amazon. If you're a start-up where will you seek capital and what will you do if Doerr says no thanks?

Best and Worst Venture Firms
(Feb 19) Venrock Associates' (New York) IPOs in 1996 soared 42%; Accel Partners (San Francisco) lost 40%. Being close to Silicon Valley didn't help Accel from getting burned on wireless and health-care companies. [Source: Wall Street Journal, Feb 11]Return to Index

New communications technology spawns a venture capital feeding frenzy. In less than a year, venture investors have bet about $50M on a dozen start-ups that are developing a way to move a billion bits of information per second over computer networks. The funding spree rivals the rush to finance companies in biotechnology when that field emerged in the 1980s. 'Venture capitalists are going to take a bath on this one' says Paul Callahan. 'The appetite for the new technology is insatiable' says Geoffrey Yang. Wall Street Journal, Feb 11, 1997

Phone Stretcher Goes Public
(Feb 11) Ciena Corp (Savage, MD) went public for $92M at $23 a share and ended the day's trading at $37. In a SF Chronicle story last week, Ciena was likened to the next Cisco (with a larger market cap than GM) in that it increases capacity on fiber-optics lines. Effectively a bandwidth expander. Ciena is 10% of the business of Uniphase. Its revenues were $17M and $38 in the two past quarters. Not an SBIR junkie.Return to Index

Small Firms Raise $10B
(Feb 6) Money showered down on small companies in 1996, $10B in venture capital, says Coopers & Lybrand. That's 53% more than in 1995. In one way, the VC firms had no choice and had to take the best deals they could make because they were themselves getting covered in money. And with returns to private venture money at 52%, why wouldn't money all try to get through the door and cause a minor stampede? With such a stampede, including 40% going to information businesses, why would government feel a need for subsidy programs for technology? Because there's always a group left out of such financing, or unwilling to pay the price, who ask government to save them. [Facts from Wall Street Journal Feb 5]


A record 26% of 1996's new issues came with operating losses, versus 17% in 1995, and 8% in 1994. Forbes, Feb 10 the average IPO gained 16% last year, versus 34% in 1995 Forbes, Feb 10, 1997

Three Techpreneurs Get A Billion
(Feb 3) Three technology entrepreneurs in 1996 suddenly found themselves worth $1B, seriously rich. [Wall Street Journal Jan 31] How does the SBIR company whose CEO wants to keep control and grow the company on free capital get to seriously rich? Forget it. You gotta go public with a story, like Netscape in 1995 and the three in 1996 that sell customer-service and telemarketing functions. What's the message for government? If you want to create serious wealth with SBIR, you gotta invest in entrepreneurs, not just smart scientists and engineers. Otherwise, you only get what you pay for.

New Venture Fund
(Jan 29) The Illinois Development Finance Authority and the Illinois Coalition, a non-profit group of Illinois business and government leaders, have set up an equity fund to help fledgling technology firms obtain access to capital. Harmonic Vision Inc., a music education software firm in Evanston, became the first firm to receive equity seed financing under the program. [Compiled by Stanley Ziemba, Chicago Tribune, January 14, 1997] A legitimate aid for start-up companies or a bribe in interstate competition? Don't ask either the beneficiaries or the politicians as subsidies to the poor fall and subsidies to business rise. Simple: small businesses vote and the poor do not.

Not enough venture capital, say the SBIR beneficiaries and political supporters. Really? John Hancock's $2.2B fund will be bought out by its managers because it's doing so well. It's the optimal time to be doing it because of the strong interest in venture capital and Hancock's Venture Partners' own numbers are so good, said Steven P. Galante, publisher of The Private Equity Analyst, a trade publication that tracks venture capital firms. The funds are raising hunks of money $950M in one place, $500M in another. Even the Colorado Public Employees Retirement Fund is putting in $200M. [facts and quote from Boston Globe Jan 14, 1997]

Only 13% Return to Privateers
(Jan 21) If you were the average of the 260 VC- backed IPOs in 1996, you rose only 13%. That's a lot less than the 53% for 1995. [Stats from Wall Street Journal Jan 21.

IPO's for Main Street. will sell IPO's underwritten by the [unnamed] firm Wall Street Journal, Jan 17. Just what a frothing stock market needs, more air pumped into it.

The IPO market, slowly emerging from its holiday slumber, offers slim pickings this week and will only get into gear toward the end of the month. "There's not even wing-flapping," John Fitzgibbon, editor of the IPO Aftermarket, said of the outlook for the week. "The flying will start after that." And in the face of broader market volatility, investors are going to be flying into the IPO market more cautiously than they did at this time last year, analysts said. [K Mehta, Reuters, Jan 13)]

$14.5B in Tech IPOs for '96 >
(Jan 6) Investment banking firms in the United States took 305 tech-related companies public in 1996, compared with 217 in 1995, Securities Data said. The new stock deals raised $14.5B in 1996, up from $8.6 B the previous year. The tech-related IPOs accounted for more than one-third of the 874 new stock issues in 1996 that raised $50B nationwide. That's up from 572 new issues with proceeds of $30B in 1995 and ahead of the previous record year of 1993, when $41B was raised by 707 IPOs, Securities Data said. Minneapolis Star Tribune, Jan 4

Big IPO Year
In 1996, IPOs raised $50B for 868 offerings. [Reuters (Dec31)], $57B says the Chicago Tribune (Jan 1), and $46B says the Wall St Journal (Jan 2). High-tech, though, got a minor share. In Silicon Valley 72 companies raised $3B [San Jose Mercury News (Jan 1)]. And the tide rolls on, despite some cooling, as the fourth quarter was the second highest ever. Punters are still willing to bet on new technology in firms with either a big concept (like Netscape) or solid profit prospects. Pure sweet technology in R&D companies will have to rely on the 7% fee in SBIR from government experts (in technology, not markets). And as long as general stock prices levitate, many companies will be selling new stock. 

Good Year for Massachusetts IPOs
In all, 49 Massachusetts IPOs were launched last year, raising $1.8 billion for those small companies. There were 31 Massachusetts IPOs in 1995. .. While the field produced some spectacular successes and failures, its overall performance was decidedly lukewarm. The average Massachusetts IPO advanced 15.43 percent, but the dollar-weighted average was only 11.53 percent. Worse, more than one in every three deals lost money. .... There was scant evidence of a sophomore slump last year among the best of the Massachusetts IPO class of 1995. Only two of the top 10 from 1995 gave back any ground and just one, Omni Multimedia Group, ended the two-year period with a loss. S Bailey, S Syre, Boston Globe, Jan 3, 96

VCs Getting Rich
Returns to private venture funds last year had a 62% return and 14% per year average over 10 years. For the five years 1991-1994 the returns were: 34,20,22,33, and 51%. [Financial World, Nov 18] 

Internet companies with unproven businesses will have to show years of profits before the public market will welcome them, The Red Herring, Sept 96, "The IPO Bubble"

Early stage investments in Europe by Europeans didn't fare so well. The top quarter of VC managers made a pooled IRR of 12.9 percent while the average for the whole sample was only 2.6 percent. No wonder most Euro VCs go for MBOs. An average return of 2.6% won't bring a cloud of money from America even from our whining VCs who moan that deal prices are too high. The study's published results concealed any breakdown by country (not surprising in the present Euro-battle over monetary and political integration). The story started with the claim that the best equity investors did better than other forms of investment. [Facts from Financial Times Dec 12, 96]

SBA Seeks Angels
An Angel Capital Electronic Network (ACE-Net) hopes to link angel investors and small entrepreneurs by computer (despite evidence that neither loves to learn computers and that angels are a reclusive lot). If you had that much money to invest, you too would reclude. The computer will be in New Hampshire and the securities police will be where? Entrepreneurs would have to tell more in public than they do now to satisfy securities laws. Although "sponsored" by the SBA, the system's policing and diligence maintenance are left vague in the two news reports (Boston Globe, Oct 30 and WSJ Oct 28). Sounds good in an ideal world, but liability for the inevitable scams will be denied by government whom no one can sue. At least they're not alone. The London Business School is starting a similar venture, said The Times Sept 11. Want IPO Information? Try the Internet, says the Wall Street Journal headline (Oct 21). Deborah Lohse's article teems with Web sources of IPO info. Bureaucrats with infinite time and lawyers billing clients for the time want SEC's Edgar. Commercial (pay-to-play) sites are Smart Edgar, or Edgar Online, or IPO Central, or Alert IPO. Free info can come from IPO Data Systems , or underwriter Montgomery Securities .

VCs Lose, Too
VCs aren't ten feet tall as small companies often think. Their losses just appear in the quiet corners. Today's Wall St Journal (Dec 10) reports the delisting of an start-up airline in which one of the largest VC firms is the majority owner. 

VC Spreading It Around.
Seventy percent of the companies getting VC funding were NOT in sight of either San Jose or Boston, says today's Wall Street Journal (Nov 22). Up sharply is the Southeast. Normally VCs put 40-45% in either SV or Route 128. But no matter how much VC money goes into new areas, the SBIR activists will still plump for favored treatment for the have-not states, just as you might expect under a Constitution that gives Wyoming the same number of Senators as California. 

Capital to Warm Cold Winter.
Several Minnesotans will have their winter warmed by venture capital. VC backed investments rose 59% in the third quarter to $23.7M while the national increase was 25%. Ten MN companies got the money, six of which are medical or high tech. [Facts from Minneapolis Star Tribune Nov 20, 1996]

Money keeps pouring into [the 700 VC funds, up from 550 in 1993] venture capital funds, which means that competition among VCs has never been stiffer. [San Jose Mercury News, Nov 18, 1996]. And 30 more IPOs are scheduled for market this week (Nov 18-22). VC pundits still see $10B by year's end, up from $7.5B last year.

More IPOs Lower
The Venture Capital Journal Nov 96 says that 40 percent of IPOs who went public Oct95-Aug96 traded on Sep 30 lower than their issue price. Only 15 percent were lower last year.

$5 Billion Invested
Venture capital invested $5 billion in the first half versus $7.5B for all of 1995, says Price Waterhouse, with $1.1 billion in software and $0.9 billion in communications. [Business Week Sep 16]. Still, as Congress considers re-authorizing STTR, look for a parade of small business appealing to Congress and their state legislatures for subsidy because private capital "isn't available". For this is the silly season of promising every voting block a handout with a blind eye to budget arithmetic. 

IPOs in English
Avoid unnecessary, superfluous words If the SEC has its way, IPOs will be readable by the multitude they hope will invest and not just by obscure lawyers. Not just disclosure, understandable disclosure. JP Zane's New York Times piece (Aug 25) describes the SEC push for clear financial filings. You can get The SEC Plain English Handbook by calling 202-942-7040. Scientific proposal writers could use the same medicine. Especially software proposals.

IPOs on the Net
Capitalism has another opening for the gullible - start-up investment on the Net. These gullible, though, must at least be qualified investors (rich enough to know what they're doing). A Texas/California firm jumped right on the July 26 SEC ruling to allow private placements on The Net. Info from IPONet. For the rich who want to investigate first, IPO Maven for $35K a subscription. Warning: where's this much money to be made where the basic facts are known to only a few, qualified gullibles will be fleeced and legitimate start-ups (like the best SBIR awardees) will be hurt. NOTE: Carl Nelson Consulting does not recommend investments or businesses. 

Money and Marketing
A VC firm claims a first: hands-on up-front marketing plus money. The Growth Approach, LLC (Troy, MI), in its first year of business, says it serves high-tech, bio-tech, communications, electronics, medical, auto, consumer goods, and manufacturing.The Business Wire says the phone is 810-643-9111. NOTE: Carl Nelson Consulting does not recommend investments or businesses. 

New England Investment
Venture capitalists sank $366M into New England companies in the second quarter, saysThe Boston Globe (Aug 21). (Maybe sank is too negative a verb.) That's double last year's 2d quarter. Software and info services got 23% of it. (Internet isn't ready for a shakeout yet.) The Price -Waterhouse/Boston Globe survey heard from 355 VC firms, 43% of those invited to respond. Some also, of course, cashed out their earlier investments in twenty IPOs raising $890M.

Record Silicon Valley VC Investments
VCs invested a record $761M into Silicon Valley says the San Jose Mercury News in the second quarter. Still the Mercury's Ricardo Sandoval forecasts a cooling of such fervor given an oversupply of computer chips. Michael Murphy, though, editor of California Technology Stock Newsletter says, "A drop in technology stocks is a dumb reason to stop VC funding", since "technology, including phone companies, represent 15% of the nation's economy". 

Flowing Capital
VC money poured into New England companies in the second quarter, says Sunday's Boston Globe (Aug 11). $426M into 96 companies, an average deal of $4.4M up from $2.9M last year. Nationally $3000M in 54 companies. More concentrated, though, than last year as the average deal size rose to $5.1M from $4M. Whether the more money per deal is good or bad depends on where you sit. A better test of distribution is the median investment and the median size firm. The politicians from South Dakota and Idaho don't like such concentration, in either firms or New England, and will do what they can to push federal money as a substitute for their constituents. Even western Republicans, who decry meddling (except for water and grazing subsidies), will be in the trough (for "investment").

Hot Spring, Cool Summer for IPOs?
"chisels chipping away at the gravestones" says Business Week(Aug 19) of the IPO summer. Lots of investors who bought during the IPO's heady rise from issue to the top and back to an average 10.5% gain have big losses. For the worst 50 of '96 IPO's the typical loss is 50%. (Among the worst is Autonomous Technologies (Orlando, FL) which never even saw such a rise and was down over half before climbing back to a mere -40%.) The weekly IPO list shows the glaring gap between May and August. The Wall Street Journal even started a separate list for IPO from other equity issues. Not to worry, the froth will return; dreamers never die.

Info and Life Money
Info tech got the most money and life sciences the next most, says VentureOne Corp, of venture backed companies in second quarter 1996. 366 venture backed companies raised $2.5 billion, up 4.5% from a 1995's second quarter. That's a troughful for piglets and a sign that lots of money people out there see a rosy future. Otherwise they'd be buying Treasuries.

IPOs Waning?
Today's Wall Street Journal (June 24) carries a story of IPO after-prices no longer leaping. The average first week gain is down to 14% from 25%. In principle, a zero gain means that the IPO was fairly priced. Of course, such stories worry the perpetually nervous and turn greed to fear. One way to see the IPO market is the shallow ocean near the beach (or rocks) where waves break fiercely and wave heights are a large percentage of the water depth. The big profitable, well-capitalized companies live in the deep water where tides affect the level but the waves are much smaller than the depth. The investors are like the shelduck or eider parents leading the chicks into the froth. (For live illustrations visit the Orkney Isles in early June. No, they're not just off Cape Cod, but they do speak English.) Don't worry, greed will return. 

IPOs Roll On
High tech firms are still tapping the spring of public money with IPOs. The Boston Globe reports 41 New England IPOs in the first half, against 48 for the whole of 1995. The Wall Street Journal has divided its new equities column into IPO and non-IPO. Both, of course, hedge by saying the the rage must stop sometime and find the evidence in the fewer IPOs that shoot straight up, Netscape style, after issue. The San Jose Mercury News continuously reports new records in Silicon Valley IPOs. Companies in the "flyover states" will have to look a little harder for IPO news in their areas.

Where Are They Now?
The Boston Globe's Annual Globe 100 Section (May 21) looked at where the top ten Massachusetts IPOs in 1992-1994 (as measured by their stock value a year later) were in 1996. Two from the class of 1992 had SBIR in their start-up days, Kopin (Taunton, MA) and SatCon Technology (Cambridge, MA). Kopin is the same and SatCon is 128% ahead. The unweighted average was about +50%. 

Small Caps Win
For the 2d quarter, for the past 12 months, for five years, and a virtual tie for ten years, small company mutual funds led the pack for returns. So says today's Wall Street Journal (July 3). Investors for ten years would have had a 12.5% annual return (which would have nearly doubled their worth.

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