Business

The National Association of Seed and Venture Funds (NASVF), a national organization of public and private equity firms and private equity investors, released a study this week of 5,000 early stage funds and providers that support young entrepreneurial companies and found that State level funding for these companies is dire.

According to NASVF’s press release:

The survey found that the vast majority of young innovative companies across the United States – the emerging Microsofts, Ciscos, Apples and Genentechs of the 21st century --cannot find the early and seedstage financing needed to develop their products and services and bring them to market. Many venture capitalists that used to provide this critical phase of funding aren't making new, early-stage investments are also having difficulty raising capital.

“We are very concerned that we could lose a generation of technology companies because venture funds can’t raise additional capital,” said Jim Jaffe, President/CEO of NASVF. “The results of the survey were very disturbing and show that Congress and the President need to act quickly before hundreds of millions of already invested dollars and high paying quality jobs are lost.”

The study found:

• 90% of the already-funded companies can’t obtain follow on funds to get to the next level.
• 75% of the money received by seed and early stage venture funds comes from private investors.
• 70% of the money needed to fill this early stage investment gap is less than a million dollars per company.
• 60% of early stage funds aren’t making any new investments.

Of course, we have seen this in Indiana where our only State sponsored technology venture fund, the 21st Century Fund, is extraordinarily limited in investment scope and may even go under this year. Further, none of Indiana’s share of the economic stimulus funding is going to entrepreneurship and business innovation. The only thing Indiana does have is healthy higher education institutions that foster innovation through their research parks and business incubators, but these businesses are limited to those that arise from university-born technologies.

It is time for State governments to step up and support entrepreneurship and innovation. It is here that businesses grow, jobs are created, wealth is built, commercial spending climbs, and tax revenue for the State increases. That is economic stimulus!

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See also:

US Private Equity - Requires Self Awareness

Funding Law - Buyer's Market
Funding Law - Investing in Midwest Technology Companies
Angels are Still Investing
Private Equity VIII – Environment for Buyers and Sellers

Private Equity in 2009 – Don’t Give Up
Private Equity VII – More on Angel Investors