July 2, 2001
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 ESVCAs "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
organizations 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
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,
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.