Synopsis of Early Stage Venture Capital
Alliance (ESVCA):
"An Excellent Environment for Seed and Early Stage Investing"
Redwood Shores, CA -- July 2, 2001 -- Despite the significant slow down in early stage investing, the tone was bullish at the 13th annual meeting of the Early Stage Venture Capital Alliance (ESVCA), held June 21, 2001 in Palo Alto, CA. Managing directors of leading early stage venture capital firms convened at ESVCA’s "Back to Reality: 2001" conference to share how the current environment is impacting their industry, and to explore creative new investment tactics. The Early Stage Venture Capital Alliance is a national community of more than 150 seed and early stage venture capital firms that have met annually since the organization’s inception in 1988.
ESVCA Chairman Vincent M. Occhipinti remarked, "The combination of low valuations and high quality deal flow has created an excellent environment for seed and early stage investments." Vincent Occhipinti has provided leadership for the Alliance for the last ten years. He is founder and Managing Director of Woodside Fund, a leading venture capital firm in Silicon Valley that focuses on early stage investments in Internet Protocol infrastructure and e-Commerce infrastructure.
John E. Hall, Managing Director of Horizon Ventures, and a three-year member of ESVCA, stated "The ESVCA conference is a great place to get together with other early stage venture capital firms and exchange perceptions on the characteristics of the current investment period." Horizon is now syndicating all their deals because they anticipate it may be harder to raise capital in additional rounds.
According to Alliance member Greg Sands, Managing Director of Sutter Hill Ventures, it is a good time to invest in a new early stage venture. "There are many good opportunities right now. That being said, given the financial risk, investors have to make their investments very carefully and invest only in those companies that don't require huge amounts of capital, and show good progress."
ESVCA Conference 2001 Findings
ESVCA members averaged one investment each over the past 6 months. This reflects an industry wide decrease of more than 50% in early stage investing in 2001 compared to 2000, as reported by VentureWire. In response to the new marketplace, Alliance members are investing more selectively, managing cash flow more stringently, shortening time to profitability, tying funding to the accomplishment of milestones, and syndicating early. On the upside, pre-money valuations are down, often equal to the amount of money raised, and option pools are between 20% and 30% of the post-funding valuation.
Now that certain sectors are overpopulated, some funds are broadening their focus -- looking at new sectors and putting greater emphasis on the strength of business models. The most popular sectors identified during the meeting were storage, enterprise applications, security, and B2Bi.
About ESVCA
While the venture capital and entrepreneurial communities host several annual conferences, none existed specifically for early stage venture capitalists until 1988, when ESVCA was formed. The original idea for ESVCA was to create a confidential atmosphere where managing directors of venture firms could freely exchange candid observations and information on the most sensitive and timely topics facing their industry. Today the Alliance maintains this same atmosphere that fosters effective communication among its members.