Venture capitalists continue to be leery of investing in early-stage startup companies, with just over 10 percent of all first-quarter investments in the Washington region going to such “seed” firms, according to the PricewaterhouseCoopers/National Venture Capital Association quarterly MoneyTree report.
“If you’re looking for that first $500,000, that’s tough money to find,” said Gina Dubbe, a managing partner at Walker Ventures, a venture capital firm in Maryland. Startups typically won’t win funding without a solid product prototype or a vote of confidence through previous grant funding, she said.
Startups are also relying on state-funded venture investments, such as the Maryland Department of Business & Economic Development’s venture funds. Of the 44 investment deals in the first quarter, 10 were funded by that department.
The industry recognizes the gap in seed and early-stage funding, according to a survey conducted by the Mid-Atlantic Venture Association. Nearly 70 percent of venture capitalists surveyed said they want to find more seed and early-stage deals, with 19 percent of those wanting to focus on seed deals. But 42 percent also expressed an interest in finding more late-stage and buyout deals.
Overall, venture capital investments remained essentially flat in the first quarter, according to the MoneyTree data. A total of $180 million was invested between January and March, up just $26 million from the first quarter of 2005. Telecommunications, software and biotechnology were the top three industries winning investors.
The region also continues to trail other major metro areas despite the abundance of federal contracting companies in and around Washington. The D.C. region ranked 10th in total dollars invested and sixth in number of deals. Silicon Valley and New England ranked first and second respectively.
Proximity to the federal government is a double-edged sword, said Errol Arkilic, a program manager at the National Science Foundation. The organization funds startup and early-stage companies.
While there’s plenty of opportunity for startup companies to serve the federal government, “there’s a real contractor mentality here when you think about startups … that’s so far from the atmosphere of Silicon Valley,” Arkilic said.
The return of Venture Capital?
1999
» Total invested: $2.184 billion
» Total deals: 257
2000
» Total invested: $5.567 billion
» Total deals: 485
2001
» Total invested: $2.13 billion
» Total deals: 254
2002
» Total invested: $1.073 billion
» Total deals: 188
2003
» Total invested: $832 million
» Total deals: 172
2004
» Total invested: $953 million
» Total deals: 166
2005
» Total invested: $997 million
» Total deals: 194
2006 – First quarter only
» Total invested: $180 million
» Total deals: 44
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report with data provided by Thompson Financial
