New growth: after a long winter, VC funding is beginning to bloom again

Entrepreneur, July, 2005 by Tracy Lefteroff

After three years of relative drought, the "MoneyTree" is growing again. A total of 608 startup and early stage companies got their first round of venture capital in 2004, according to a special analysis of the "MoneyTree Survey" prepared for Entrepreneur by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. Together, those early stage companies received $2.68 billion in funding. Both figures are up notably from 2003--the first increases in three years. On average, startup companies received $2.1 million each, while early stage companies averaged $5 million each.

More encouraging is that the factors underlying this growth are organic. Since investing peaked in 2000, VC firms have naturally spent a large portion of their time working with companies in which they had already invested. Now, as many of those companies have matured, VCs can turn more attention toward the next crop of seedlings. The VCs on this year's list are doing just that: The median number of first-time investments in startup and early stage companies is four, compared to a median of three last year. This year, VCs had to complete at least three qualifying deals just to make it onto the list. Last year, two was enough.

Still, cultivating venture capital is no easy task. Entrepreneurs must combine an idea's potential with equal measures of prudence and perseverance.