Venture capital showing signs of rebound

Except for an unprecedented peak in investments in 2000, venture capital investing has been on a rocky road since the turn of the 21st century. With the bursting of the "tech bubble" in 2000 and the national recession, venture capital investing has been on the decline from quarter to quarter for the past two years. This downward trend finally came to an end in the second quarter of 2003.

After record-breaking venture capital investments in 1999, with $284 million invested in 20 companies, and then again in 2000, with $480 million invested in 28 deals, venture capital investments began to decline in Missouri like the rest of the nation.

As evidence of the extreme caution being exercised by investors in 2001 and 2002, Missouri attracted $370 million in 23 deals in 2001 and only $162 million in 36 deals in 2002.

But despite the decline in venture capital activity, Missouri has continued to draw investors consistently, remaining as one of the top attracters of venture capital funds in the Midwest region.

Compared to surrounding states, Missouri ranked second in the share of venture capital investment in 2002, behind only Illinois. However, Missouri's share of investments has remained fairly steady since 2000 while Illinois' share declined significantly in 2002.

Now, for the first time in two years, the MoneyTree Survey - a quarterly study of venture capital investment activity in the United States - indicates that during the 2nd quarter of 2003, there was $4.3 billion in venture capital investments in the U.S., up from $4.0 billion in the first quarter. This marks the first quarter-to-quarter increase in two years.

As often is the case, Missouri mirrored the nation with venture capital investments rising from $26.9 million in the first quarter to $39.5 million in the second quarter of 2003. This amount was high enough to rank the Show-Me State first in the Midwest region and 18th among the states reporting venture capital investments in the second quarter.

$21.5 million, or more than half of the second quarter investments, were made in the state's biotechnology industry. In fact, investments in Missouri's biotech industry in this quarter alone accounted for more than half of the total investments in this industry in 2002, which totaled $41.3 million.

Recent investments were also made in the semiconductors, medical devices and equipment, telecommunications and software industries.

While this is good news, the National Venture Capital Association cautions that this rise in venture capital investing doesn't necessarily indicate a reversal in the trend of declining activities we have experienced over the past two years.

Just as is the case with an economic recovery, there must be consecutive growth patterns and sustainable activity in the industry before a turnaround can be fully declared.

Promising high-tech ventures developed and nurtured in Missouri hold a great potential for the state's economic future, but they must be fueled with adequate amounts of venture capital.

Solid, core investing at a healthy pace at all investment levels is key to the future success of Missouri's up-and-coming entrepreneurs and high-growth firms, as well as the state's future economic prosperity.