Washtech.com: Venture Capital Investment in the Washington-Baltimore Region
Discussion with PricewaterhouseCoopers' Tom Archer
Wednesday, Nov. 28, 2001, 1 p.m. ET.
Tom Archer is a partner in PricewatehouseCoopers' Technology, InfoComm and Entertainment & Media practice. In Wednesday's one-hour live online chat, Archer will discuss new findings from the PricewaterhouseCoopers MoneyTree survey of venture capital investments in the Washington-Baltimore region -- a survey conducted in partnership with VentureOne, a venture capital research firm.
Archer has been with PricewaterhouseCoopers since 1990. He has had significant experience in serving public and private Internet and communications companies. His diversified background includes primarily advising companies on business planning, financing alternatives, equity transaction, mergers and acquisition considerations, among others. Archer has hands-on experience delivering professional servies to a number of key clients, including PSINet, WorldCom, Intellibridge, Sandbox.com, Pedestal, Clean Communications, APC Sprint Spectrum, Mobile Telesystems, INTELSAT and ARINC.
This Live Online will be moderated by Brendan Barrett, finance reporter for Washington Techway magazine and a regular contributor to Washtech.com.
The edited transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Welcome to today's live online featuring Tom Archer of PricewaterhouseCoopers. We will be discussing the regional venture capital scene, so submit your questions!
Tom, why don't you start out by giving us your take on PwC's Money Tree report on this quarter's venture capital investment in the region. The amount invested, $327 million, marked the fifth straight declining quarter. Is there any silver lining?
Tom Archer: Thanks Brenden. I am pleased to have the opportunity to participate in your online discussion today. PwC is excited to release the results of our Money Tree survey for the third quarter of 2001. You are right that the results indicate that the overall activity in terms of both deals and total dollars were down from last quarter and last year. However, on a year to date basis total dollars invested in 2001 are still ahead of those invested in the first three quarters of 1999. I think we would all agree that 2000 was an anomoly and comparisons may not be relevant.
Welcome to today's live online. We'll be getting underway momentarily.
Tysons Corner, VA:
What should we make the fact that fundings of early stage firms GREW in 3Q? I thought the consensus was that VCs were putting all their eggs in later rounds.
Tom Archer: This is true. Our Money Tree data show that 38% of the investments in Q3 2001 went to early stage companies; up from 16% in Q2 2001. VCs are continuing to monitor their portfolio companies and providing additional funding, but this quarter's data indicates that funding is still available for companies that demonstrate strong business models and experienced management teams. Our VC panelists at our Money Tree conference this morning confirmed that money is still available for early stages companies for the right deal.
What do VCs think of the fact that a recession has been officially "declared?"
Tom Archer: This is a good question and I am sure is on the mind of many entreprenuers. This questions was asked to our VC panelists this morning and indicated that announcement of the "recession" has not changed their strategy directly. Venture Capitalists are making investments for thier limited partners over a long term horizon and many belive that the recession will be short lived.
Why does the D.C. region continue to lag behind other geographic regions in terms of total VC dollars invested?
Tom Archer: I belive that the DC region is very healthy in terms of VC deals and dollars when compared to other regions. Silicon Valley continues to be the 800 gorilla. Our Money Tree data only includes VC investments and the DC market is also fortunate to have the US Government as a faciltator of new technologies and investment which is not included in our data.
The telecom sector has taken a huge hit over the last 18 months. When do you think the industry will turn around, and are VCs willing to risk investments in this sector?
Tom Archer: On a national level, the telecommunications sector continues to receive the most VC dollars than any other industry. True, in absolute terms the telecom dollars are down from prior quarters. Telecom firms are still getting funded but the business philosophy of build it and they will come no longer applies. Certain sectors of the telecom industry are "on hold" if you will pending regulatory developments and reductions of IT budgets by traditional customers. I think our data indicates that VCs are willing to continue to invest in this sector for the right companies.
Are you seeing more firms seeking financing as they seek government contracting business? In other words, did Sept. 11 prompt firms to seek funding to reorient their businesses to the gov't market?
Tom Archer: Companies in the security and certain biotech areas are certainly benefited from the events of September 11th. The federal government is a major purchaser of these services and companies are evaluating opportunities to increase business with the federal government. At our Money Tree conference this morning, the VC panelists indicated that they are looking at business models which include significant government contracting revenues but they are concerned about the longer sales cycle with government contractors.
Is it true that venture capitalists are increasingly turning their investments toward the biotech and life sciences sectors?
Tom Archer: As mentioned above, I would expect more biotech deals to be considered in Q4 and beyond, but our Money Tree data indicates that for Q3 2001 there were 51 deals for $581 million in the biotech sector. This investment level is slightly higher than Q2 2001.
Are VCs branching out into non-tech sectors?
Tom Archer: Technology and related industries continue to obtain the substantial majority of VC investments. However, non tech sectors such as retailers, healthcare services and industrial services have received over $100 million in venture funding on a national level in 2001 to date.
What's the climate for venture-capital investment in bioinformatics? Do many VCs have an interest in or understanding of this emerging industry?
Tom Archer: The venture capitalists that I have spoken with are interested in bioinformatics companies. In this region, we have more VC investors in the software sector versus biotech. Therefore, I would expect that as the bioinformatics industry grows that we will see more investments from the software oriented funds who may have avoided the biotech sector. Off the top of my head, I recall Viaken Systems and BioNetrix receiving funding in 2001 as an indication of interest in this sector.
I heard at the MoneyTree seminar this morning that some VCs are producing internal rates of return of -15 to -20%. Are some Venture Capital firms in serious trouble?
Tom Archer: Clearly, I think that some VC firms are in trouble. Yesterday in the Washington Post, I'm sure you saw the article about the demise of corporate VC funds. The more established funds that existed before the boom in 1999 seem to be having less trouble than those funds that were created during 1999 and 2000.
Who backs the venture capitalists? Is there any indication what direction these investors are leaning to in the future?
Tom Archer: VC raise money from several sources but primiarily accredited investors and institutional funds. These parties view their VC investments as a critical component of their overall investment strategy and will continue to do so.
Tom, we're quickly approaching 2pm, so why don't you take one more question.
How true is it that there is $20+ billion sitting on the sidelines now waiting to be invested by VCs?
Tom Archer: This myth is a reality. Our panelists this morning acknowledged that there is still plenty of VC money to be invested for both follow on and new deals.
Tom, Thanks very much for answering all of the questions. And thanks to everyone who participated. Sorry we couldn't get to all of the questions!
Automatically Update Page
| Get New Responses | Submit Question
© Copyright 2001 The Washington Post Company