Private Equity/Venture Services

As Associated Press business writer Michael Liedtke observed in his October 20, 2008 article Feeling Financial Squeeze, VCs Curtail Investments, “Although a drought hasn't set in yet, it's looking inevitable as the ripple effects of a worldwide financial crisis rattle venture capitalists.”

According to data released by Thomson Reuters, PricewaterhouseCoopers and the National Venture Capital Association, venture capital investments have recently experienced the largest decline since spring of 2003 following the dot com bust.

Many venture capital firms are advising the management teams of their portfolio investments to revise their short-term business plans to reduce costs by laying off staff and trimming budgetary spending in expectation of a worsening recession.

Although venture capital investments have experienced the largest drop off in the last decade, there is a silver lining in the form of a rising interest in biotechnology and alternative energy.  As stated by Terry Kosdrosky in Private Equity Has Toolkit to Ease Troubled Market, “Political leaders and the public are hungry for renewable sources of energy that will lessen the country's dependence on foreign oil and cut down on pollution.”

Venture capital and private equity funds have followed the emerging trend of new companies seeking to stake a founding interest in these industries.  For example, Liedtke cites statistics supporting a 21 percent increase in venture capital investments in biotech startups from last year, while alternative energy, was close behind with a 17 percent increase.

In addition to venture capital opportunities in the U.S. biotechnology and alternative energy industries, Kosdrosky also points to growing opportunities overseas, stating “With growth stunted in the U.S., many private equity firms are looking to put their money to work in growing markets such as China and India.”

The current financial climate has forced venture capitalists to focus their resources on existing investments rather than taking on new challenges.  What does all this mean?  Despite the downturn in the global economy, opportunities for lucrative venture capital investment still exist, albeit in new forms and perhaps in sectors not previously considered.  As blogger Seth Levine wrote in his October 22, 2008 post of VC Adventure, “Be flexible. Seek outside input. Be introspective. Stop and consider what you're learning and if it effects key assumptions behind your business idea. Tweak what you're doing.  Repeat.”