capital

With the recent news that initial public offerings and mergers and acquisitions for venture-back companies are becoming scarce, many are anticipating a national venture capital crisis. A lack of exit opportunities could lead angel and venture investors to become more hesitant to invest at any stage of venture development as they seek opportunities that produce a return in the foreseeable future.

While California and Massachusetts may overshadow much of the venture capital (VC) activity going on around the country, other states have made significant progress in developing venture industries that serve the needs of their economy. Though larger investments in later-stage companies are becoming more prevalent in the U.S. venture industry, some states are seeing increases in smaller, early-stage investments that, if successful, should lead to significant growth in their total VC investment in years to come.

Venture investors are increasingly turning to overseas markets for promising investments in key high-tech industries, according to the 2008 Global Venture Capital Survey conducted by Deloitte and the National Venture Capital Association (NVCA). The annual poll of 400 international venture capital investors found that the U.S. is still perceived as the strongest technology economy in all sectors, but other countries are developing industry specializations that allow them to be competitive with the U.S. in one or two particular areas. While no single country is likely to overtake the U.S.

New York City officials recently announced the launch of a $2 million seed fund to boost entrepreneurship and the local venture capital market. NYC Seed will provide up to $200,000 for seed-stage New York-based businesses and will offer mentoring and other support for client companies.

An initiative in Iowa to disperse tax credits worth 20 percent of equity investments into pre-qualified businesses or seed capital funds has reached its $10 million cap and will not be continued in the next fiscal year. The Iowa Venture Capital Credit – Qualified Business or Seed Capital Fund was started in 2002 with a cap of $10 million, and as monitored by the Iowa Department of Revenue, all credits have been issued.
 

Last week, Premier Ed Stelmach of Alberta introduced a $170 million suite of initiatives to support high-tech economic development in the province. The government hopes that by providing support for commercialization from research to market it can attract high-tech entrepreneurs from other areas. Most of the province's investment will support the creation of the $100 million Alberta Enterprise Corporation to encourage venture capital investment.

Throughout most of the history of the U.S. venture capital industry, expanding, and not start-up companies, have been the primary focus of venture investors. Recent data from the PricewaterhouseCoopers and National Venture Capital Association (NVCA) annual MoneyTreeTM Report indicates that investors are beginning to focus on even later-stage companies, which could be a problem for entrepreneurs and states trying to attract earlier-stage dollars.
 

During the 1990s, especially the mid- to late-part of the decade, many countries experienced booms in their high-tech and venture capital industries. Few, however, grew at the same pace as Israel.
 
Israeli entrepreneurs created eight times as many high-tech companies during the 1990s than in the previous decade and equity investment in Israeli start-ups grew from $50 million to $6.65 billion. The number of venture capital companies in the country jumped from two in 1990 to about 100 in 2000.
 

“I recognize the importance of attracting venture capital and new investments to Maine,” Gov. John E. Baldacci said. The governor later added, “However, as it is currently written the bill carries enormous risk. This bill would guarantee a rate of return for venture capital investors while Maine would shoulder all the risk. The potential liability for the State is too great for me to sign this bill.”
 

SSTI’s VC Dashboard Value Enlarged with Addition of Per Capita Data