Everyone wants to be a venture capitalist these days. In the U.S., the tsunami of money now pouring into new ventures--most with dot-com attached to their names--has built up gradually over the last decade or two. For Europe, Asia and Latin America, the floodgates seem to have opened up overnight.

That's good news for entrepreneurs around the world. As McGill University's Reuven Brenner has observed in these pages, it's not enough to be an entrepreneur with a great idea. You need financing. The spread of the venture capital culture means that financing for good ideas has never been easier to find. Whether you're a potential investor, an entrepreneur looking for investors or a government policy maker, consider the following articles as a primer on how new jobs and wealth are created.

No one knows just how much money is actually out there. In the US, venture capital funding jumped 150% last year to $48 billion. In Europe, the European Venture Capital Association estimates 1999 investment grew more than 20% to around $18 billion, including much of what would be classified more broadly as private equity--corporate buyouts and management buy-ins.
In Asia the Asian Venture Capital Guide, which also helped us prepare our list of venture capitalists in the region, estimates 1999 venture/private equity investments at over $6 billion. Reports Daniel Schwartz, publisher of the guide: "There are two themes in Asia now: buyouts and bytes."
Too much, too soon? There is no question that many hapless investors are going to lose money. A great deal of money is chasing a handful of projects in many markets. Greed and excess always end in tears for some--usually the inexperienced and last to join the party. Remember this: Venture capital is a market; like any other market, it runs in cycles.

Listen to Alan Patricof, founder of Patricof & Co. in New York. Patricof has been investing overseas for decades; he and his partners have lived through the bad times (see page 43). Says he: "The secret now is to be disciplined. It's so easy to get carried away, with things valued on the hereafter."

With so much excess, there is a lot of dumb money chasing venture investments. "Some European technology is great--and undiscovered--because the education system is so good," explains Mike Lynch, founder of Autonomy and Britain's newest billionaire. "But a lot of the money isn't very smart and is investing in hopeless dot-com ventures, the companies that until six months ago were in property or computer hardware."

Venture capital begets venture capital.
The market capitalization of entrepreneur Richard Li's Hong Kong-listed Pacific Century Cyberworks has soared from less than $9 billion to $27billion in only three months. Pacific Century used its stock market riches to buy Hong Kong's incumbent telco from Britain's Cable &Wireless--with a little help from U.S. venture capital firm CMGI and U.S. buyout firm Hicks, Muse, Tate & Furst. Li's next move? Become a venture capitalist.

Corporations big and small are pouring money into venture capital--to the tune of $7 billion last year, up from barely $1.5 billion in 1998, according to the National Venture Capital Association. Reuters Plc.'s Greenhouse Fund, soon to go public, is only one of ten corporate venturers listed on page 46. Asset Alternatives, the Wellesley, Massachusetts, consultant, tracks no less than 163 corporate VC funds, most arms of big U.S. multinationals.

What we couldn't include were the thousands of angel investors, mostly wealthy individuals, who often provide start-ups with seed money. In the U.K. alone, the British Venture Capital Association counted nearly 7,000 angels, a threefold increase since 1993.

When the capital markets, in their collective wisdom, spot a hot trend, the first urge is to turn it into a retail product for the masses. America's CMGI and Britain's 3i are among the few already-listed venture capital outfits. Now London-based First Tuesday, a networking society that brings together people with dreams and people with means, hopes to monetize its idea by going public.

A crucial element of the equity culture, venture capital is spreading like wildfire. It's a risky business. But the world will never be the same.
 

Source: Deborah Orr , Forbes, April 3 2000