Although recent data indicates venture capitalists continue to shy away from early stage investments, the majority of companies at Wednesday’s Capital Connection — a regional fair that links investors with local startups — were early-stage firms in search of first-round venture funds.
At the event, the “American Idol” of the venture capital world, pre-selected companies have eight minutes to present their concepts and business plans to a room full of interested venture capitalists.
About 60 percent of this year’s 36 companies were early-stage firms, though a report recently released by PricewaterhouseCoopers and the National Venture Capital Association indicated that Washington-area investors are still hesitant to bet on seed and early-stage companies.
In the first quarter of 2006, venture capitalists invested about 35 percent in early-stage deals and nearly 11 percent in seed companies, while later-stage and expansion investments accounted for 54 percent of all deals.
The fact that the fair’s sponsor, the Mid-Atlantic Venture Association, invited more early-stage companies to make their sales pitch — last year about 40 percent of the companies were early-stage — is a reflection of the industry’s long-term recovery, said Jonathan Perl of Boulder Ventures, a Colorado-based fund with offices in the Washington area.
The mix is “reflective of the quality of the newer crop of companies. During the bubble everybody wanted to start a company,” he said. But then the “bubble” burst in 2000 and venture funding took a hit both regionally and across the country.
“Post-bubble, there was a dearth of seed and early-stage companies,” Perl said. “[Venture capitalists] and entrepreneurs were risk-averse, but high-quality entrepreneurs are jumping back in.”
The presenting companies — which included a mix of software, telecommunications, networking, Web-based and consumer-oriented companies — requested a combined total of nearly $250 million in funding. Last year, 46 percent of the presenting companies were funded with a total of $140 million. Historically, the fair, which is in its 20th year, has seen 35 to 45 percent of its presenters get financing.
A sampling of startups in the Washington area
About 27 percent of this year’s Capital Connection companies were software firms, which have historically dominated the Washington venture capital scene. But this year’s Capital Connection also saw a rise in consumer-oriented digital media companies and open-source systems management software companies.
Among those in attendance:
» BrainBox (Silver Spring), a media content production and Internet TV distribution company, focused on creating broadcast content for corporate companies such as HBO and the Discovery Channel.
» DoublePositive Marketing (Baltimore), a marketing solutions company using Web-based applications, real-time data management and advanced phone technology to deliver leads to sales professionals.
» Zenoss Inc. (Annapolis), an open-source systems management software company that essentially provides low-cost IT infrastructure for medium-size companies.
» For a complete list of this year’s companies, visit www.capitalconnection.org.
