The Good News and Bad News About the Venture Landscape
President, National Venture Capital
When it comes to appraising the state of the venture capital industry these days, one can choose to look at the glass half full or half empty. On the one hand, the IPO market is dormant, and the number of VC firms is winnowing, a natural reaction to the
challenging macro-economic picture. At the same time, VC activity overall has returned to a more sustainable level. And the trends in Ohio are more pleasing than elsewhere in the country.
That was the gist of the industry overview that Mark
Heesen, president of the NVCA, provided OVA members at the September 12th luncheon. The association over which he presides represents about 400 of the 700-some VC firms in the country, but about 90% of the venture capital under management.
He began by reminding his audience about the relatively small size of his industry. As crucial an economic player as some might believe the VC sector to be, with $37 billion raised last year and accounting for just .3% of GDP, it's still essentially "a rounding error" in the larger American economy, dwarfed by such asset classes as hedge funds, buyout firms and mutual funds. On the other hand, speaking no doubt as someone who makes his living lobbying Congress, he pointed out that venture-backed companies have a disproportionate effect on the economy, employing more than 10 million Americans and generating more than 17% of total GDP.
For all the buzz about the so-called clean tech sector, he noted that there hasn't yet been an overwhelming move to investing in that area. He predicted that when the final numbers were in for 2008, about 15% of U.S. venture funding will have been devoted to investments in clean tech deals, which tend to be larger investments than IT deals. While that might seem low, it's about seven times the activity
of just a few years ago, he said. Overall, about one-third of VC funding still goes to the life sciences, but it has been increasingly shifting from the biotech area to medical devices, largely because of the relatively shorter time involved in receiving FDA approval for devices.
But the IPO situation has been nothing short of catastrophic, he said. With two-thirds of the year gone, there have only been eight in the
U.S. thus far this year (the annual range is normally between about 85-100). For the first time in 30 years, there was a quarter this year in which not a single IPO took place in all of America. "I personally don't see a change in the IPO market in the next six months," he said. "I hope I'm wrong." Besides the obvious cloudier economic picture, he thinks the lower numbers also result from a sea change in thinking among those who begin companies. "I think entrepreneurs no longer see going public as the brass ring. That's a very important psychological factor." But he said the American economy still needs these new public companies as regional economic anchors and solid corporate citizens. "So this is a long-term issue for us," he concluded.
The trends in Ohio are more favorable than in many other states, he noted, in large part because of the catalytic role played by the state's Third Frontier project. The number of VC firms with a presence in Ohio has been on the rise.
Mr. Heesen concluded by observing that it's hard to say which presidential candidate would be better for the VC industry. But whomever it will be will likely have to work with a Democratic Congress next year. He identified more HB1 visas, lower capital gains tax rates and health care reform (where the industry hopes cost-saving innovations aren't tossed out of the equation) as the biggest legislative priorities for the industry.
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Israeli Company Focuses on Vision-Screening Bottlenecks
El-Vision, Ltd., is an Israeli-based company that produces devices aimed at offering low-cost, high-quality vision-screening services to underserved populations, including diabetics, low-income individuals and those who live in remote locations. It says these patient populations are ill-served by the current health care system.
Having commenced operations in August, 2006, the company will soon complete a $2 million round of funding, and now has six employees. "There's a very intense competition in the U.S. between optometrists and
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Device Focuses on Predicting Pre-Term Births
Cervilenz, a medical device start-up, makes a single-use, disposable tool that measures the length of the female cervix during the second trimester of pregnancy. That calculation is used to predict premature births. Almost 13% of births in the United States are pre-term, or occurring less than 37 weeks after conception. It's considered the leading cause of infant mortality.
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