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NVCA presents upbeat prognosis for US venture prospects in year ahead

The National Venture Capital Association has predicted a healthy outlook for the year ahead based on the strength of institutional interest in the asset class and an upturn in the venture cycle. Mark Heesen said 2005 will be characterized by the deployment of newly raised funds and an increase in early stage investing - effectively marking a new chapter for VC firms and the end of the post-bubble investment phase.

In a statement, Heesen said, 'We will enter a new business cycle in 2005 when many venture capitalists will have fresh funds to invest and that has several implications for the asset class. At this time in a new fund's life, there isn't the pressure for immediate exits. Thus, venture capitalists have the opportunity to search for those seed, start-up, and early stage companies that have the potential to truly change the way we live and work in the next decade - the future FedExes, Intels and Genentechs.'

Despite the strength of institutional demand, VCs will remain focused and disciplined with the effect that companies will still have to work hard to find venture investment. Venture capitalists will be searching for true breakthrough innovation.

Tracy Lefteroff, global managing partner of the venture capital practice of PricewaterhouseCoopers, said, 'Good ideas will not be good enough as competition for funding remains fierce.'

There will also be competition among limited partners for spots in the best performing funds. 'The NVCA will continue to caution the industry against raising more money than can be invested successfully,' warned Heesen. 'Many funds will be faced with the prospect of being oversubscribed; discipline will be critical in 2005.'

The NVCA predicted that the exit markets will continue to improve in 2005 despite a questionable economy and Sarbanes-Oxley issues. Much of the improvement will be attributed to IT companies, which comprise 60 per cent of all venture investment, gaining traction this year.

'Many venture capitalists and entrepreneurs will be vindicated in 2005 as their companies that were funded in 1999 survived the "nuclear winter" and are now ready to go public or be acquired,' said John S. Taylor, vice president of research for the NVCA. 'These organisations and others will help drive higher cash distributions back to limited partners and ultimately contribute to improving returns for the industry.'

The NVCA represents approximately 450 venture capital and private equity firms. Its mission is to foster greater understanding of the importance of venture capital to the US economy and support entrepreneurial activity and innovation.

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