But historically, activity is about where it should be.
By: George Frey
New businesses looking for investors might be feeling the pinch lately, but those in the know say the reality is that things are not so bad compared to times prior to the most recent boom.
And the good news is that better news may be coming soon.
Although 2002 ranked fourth in the history of U.S. venture investments, it was down about 40 percent from the previous year a level experts said was not healthy and couldn’t be maintained all along.
"The level of investment seen today is appropriate considering current private company valuations and long-term exit opportunities," said Mark Heesen in a recent PricewaterhouseCoopers, Venture Economics, and National Venture Capital Association Money Tree report outlining the state of venture capital in America.
Mr. Heesen is the president of the National Venture Capital Association in Arlington, Va., an organization that represents about 500 venture firms across the country. He was the keynote speaker at a recent New Jersey Technology Council Capital Conference in Plainsboro.
"Venture capitalists are taking calculated risks on new companies, but realize that these new relationships will likely span many years and may require several additional rounds of capital before exit opportunities become available," he said.
Mr. Heesen said he thought venture capital in New Jersey has mirrored the trend on a national level. "There has been a sizeable drop-off."
But on a micro level, thanks to the life science, biotech and medical device companies in the region, the market in New Jersey has shown some resilience. Also, companies in the mid-Atlantic states have a tendency to work with the federal government more often than do those in states in other areas of the country. Mr. Heesen said the government is one entity that is investing heavily in new technology companies, mainly for defense projects.
Mr. Heesen predicted the venture capital market would continue its current, flat course steadily and about $20 billion would be invested in 2003. He said that, though down, $20 billion would be a healthy number, one of the largest amounts ever invested into venture opportunities in history.
The Pricewaterhouse survey went on to say the decline in venture funding abated in the fourth quarter of 2002 with total investments of $4.2 billion, essentially flat from the prior quarter of $4.5 billion nationwide. The company said 692 entrepreneurial firms were funded in the fourth quarter, compared to 671 in the third quarter. For the full year 2002, venture investing totaled $21.2 billion, down from the $41.3 billion in 2001.
The life sciences sector, biotechnology and medical devices, was the lead investment category for the fourth quarter and the full year. Life sciences was up 22 percent for the year while all other major industries experienced declines for the quarter and the year, Pricewaterhouse said.
"The economy and our geo-political situation have something to do with this," said Ed Nerz, the founder of E.V. Nerz & Co. in Lawrenceville, a company that acts as a financial intermediary between companies and venture capital investors. "The Iraqi situation has hit the whole kit and caboodle."
But Mr. Nerz said he has reason to be hopeful as things are ready to move forward. "I’ve noticed that there is a pent-up demand to get things going again. Everyone’s sitting on their hands right now." Mr. Nerz said investors would wait until international situations cool off and markets begin to show some more positive signs before there is more aggressive investment.
A result of the lack of investment capital for young or expanding firms has been that they are seeking more strategic alliances, Mr. Nerz said. Instead of waiting for capitalists to hand them $2 million to move on to the next level, they are finding partner companies that will help them grow and up their sales. "It gets the job done," he said.
The chips may be down right now but life goes on, says Joe Montemarano, the director of industrial liaison at Princeton University’s Center for Photoelectronics and Optoelectronic Materials. The POEM has helped launch a number of young companies with its technology, like Sensors Unlimited and Princeton Optronics.
Mr. Montemarano says what makes things worse is that there have been some setbacks to state funding programs in light of the fiscal crisis in the state. Furthermore, even when companies start out in the state, they often leave. Frequently, when a business is born here, it winds up moving closer to its funding source or a parent company that buys it. Mr. Montemarano said the best thing for the state would be to convince investors in New Jersey to invest in companies here. In that case, it would be more likely those young companies remain in New Jersey.
The NJTC will hold its NJ Venture Fair on March 31 at the Liberty Science Center in Jersey City. Visit www.njtc.org or call (856) 787-9700 for more information. For more information on the National Venture Capital Association, visit www.nvca.org

