Wednesday, September 26, 2001

Terrorism and Venture Capital ~ the tenuous dance

In quick response to the times and the industry, the New York Venture Group hosted a breakfast on Wednesday, September 26th on "How Terrorism will affect VC" at the New York Athletic Club. As if the technology industry didn't have a tough enough year, it's hard to imagine such a topic also being pertinent, and yet this is what it's come to. So here we are, networking, listening and discussing how something like terrorism will affect venture capital in the technology-related fields.

National Venture Capital Association president Mark Heeson spoke to the gathered group of attendees on the clear, crisp morn on a few different points. He began with a brief perspective. The industry was not in the best of times prior to September 11th. The mergers and acquisitions and IPO markets were not so great. And now, according to Heeson, September 11th extended the period where the IPO market will remain shut. Furthermore, corporations that were aggressively buying companies are becoming more conservative for the short term. Thus, Heeson surmised, if venture capitalists can't exit any of their companies soon, they'll have to hold onto them for a longer amount of time, which in turn means they can't invest in new companies. The issue gets more complicated and distressing because this is a good time to invest in new companies, Heeson reasons, because the entrepreneurs out there are really good. For the most part, the entrepreneurs that are out trying to get VC right now are serious entrepreneurs, they have a good business plan, have good management and the companies are being offered at great deals to the VC. It becomes a question of Time: entrepreneurs don't have much of it to stay afloat, and VCs now have to grapple with time management between old investments and new potential ones.

Heeson has been at the helm of the NVCA for two years but has been within its corridors for eleven doing public policy. Before that he gained experience as a tax attorney and lobbyist with the Texas State legislature and a former governor of Pennsylvania. The 28-year-old Arlington, VA-based organization represents 430 venture capital firms in the US, which is 90% of the industry. From this perspective, they can see what's going on in a national level and also keep their fingers on the pulse internationally. Heeson noted that European investors have paused with their investing in US venture capital deals. "It's not the best time for VC investing." However, he points out that "they were so dramatic. They pulled out thinking they won't invest in US deals, but rethought their decision because they saw us regroup quickly." The fact that we got our markets back up to speed and resumed business so efficiently gave a strong vote of confidence to European investors.

There's more good news too. This year the amount of money raised and the amount of money put in companies will be the third best year ever for VC nationwide, despite the number being half that of last year. Heeson rounds up "we'll continue to have our ups and downs, but we're not going away. This is an asset class that's not going away." And there are some new investing opportunities as a result of the terrorist attacks. There's increased attention on wireless technologies beyond just cell phones. And the stuff they make James Bond movies out of--voice recognition, digital fingerprinting-are coming center stage as viable investments. Good ol' industries like energy, too, are looking like attractive investments and important markets to focus on.

One thing is for sure: life has not and will not be the same after September 11th. And the reverberations in the investment community are just beginning to ripple. There will be many more for a long time, each with an interesting play associated with it.