Venture capital funds reduced to a trickle

© St. Petersburg Times,
published November 1, 2001

Dozens of hopeful entrepreneurs got discouraging, but hardly surprising, news in Tampa on Wednesday.

Investors have gotten stingy about putting money into startup ventures. When they do invest, they want a sizeable piece of the business. And if companies don't have a product or revenues, entrepreneurs will have better luck tapping friends and family for funds.

That was the message of a seminar held at the University of Tampa, and it was reinforced by the release Wednesday of the latest figures for venture capital deals in the quarter ended Sept. 30. Nationwide, $6.5-billion was invested in 601 deals, a 23 percent decline in dollars compared with the previous quarter.

It was even tougher for Florida companies: Only 13 snagged a total of $89.75-million in venture capital in the third quarter. That's down 66 percent from the quarter ended June 30. And it's an 83 percent decline from a year ago, when investors' cash flow into Florida companies peaked at $542.8-million.

"We're back to levels of funding we saw in late 1998 and early 1999," said Marty Donsky, marketing manager for PricewaterhouseCoopers' Florida Technology Practice in Tampa. The accounting firm compiles the quarterly MoneyTree survey in conjunction with Venture One. It also co-sponsored Wednesday's venture capital conference.

Donsky said deal flow in the latest quarter was a return to normalcy after a two-year spike that saw millions of dollars invested in technology startups that went bust. Among the most spectacular flame-outs in Florida was 2nd Century Communications, founded in Tampa, which was liquidated after spending more than $80-million in venture capital.

In the latest quarter, most deals were still technology-related, but average deal size was smaller. Of the 13 deals, all but one -- a biotech startup in Gainesville -- were for expansion funding. Among the companies receiving funding were Axolotl, a Tampa medical software company that got $17.7-million, and ThruComm in St. Petersburg, which got $15-million to expand its business providing connectivity to ATMs.

Panelists at Wednesday's conference had experience on both sides of the dealmaking table. Drew Graham was a principal in the oldest venture capital company in Tampa, South Atlantic Venture Funds. When the founder of that fund decided at the height of the bubble to forego further fundraising, Graham joined with Raymond James Financial to form Ballast Point Ventures. He expects to raise $40-million by year-end and begin investing in deals averaging $3-million by early 2002. But brand-new companies need not apply.

"Even in the heart of Silicon Valley the vast majority of new companies have funded themselves," Graham said. "It's always the case where you have to build a company to the point where you can convince an investor that the risk of failure is low and potential for return is great."

Susan Venner, another panelist, has been chief financial officer of two tech companies. During the height of the spending frenzy, she raised nearly $45-million for the first company, a telecom procurement company in Virginia. But after joining RedCreek Communications of Fremont, Calif., in April, she was unable to find the money needed to take the company to the next level. Instead, RedCreek's management team negotiated the company's sale this week to a competitor, SonicWall, for $12.5-million.

Venner said investors who funded RedCreek during its last difficult year structured the deal so they would get double their money returned upon sale, leaving nothing for many early-stage investors.

"That's the hard part," said Venner, who recently relocated to Tampa. "Especially when the founders used personal favors from family and friends to get started. Now they have to tell them they're getting nothing."

- Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

© 2006 • All Rights Reserved • Tampa Bay Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright