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Need capital? Green start-ups may fare best in tough '09

December 17, 2008 | 12:28 pm

Start-up companies in green industries stand the best chance of getting venture capital funding in 2009 -- in what will otherwise be a dismal year for entrepreneurs looking for money, a new venture industry survey suggests.

The National Venture Capital Assn., in a 2009 outlook report today, says its survey of 400 venture investors nationwide found that 92% predicted a slowdown in investment next year as the economy continues to contract.

That’s bad news for California, historically a major incubator of new businesses, particularly in technology.

Sixty-two percent of venture investors forecast a decline in funding in 2009 of more than 10% from the expected $30-billion investment total in 2008.

With virtually no appetite on Wall Street for initial public stock offerings, venture capitalists have lost one big incentive for putting money to work: the potential for cashing in on hit companies by selling them to public investors. There have been just 43 IPOs this year, down from 272 in 2007. And only one IPO has come to market since August 31, according to ipohome.com.

Seventy-two percent of venture investors in the survey said they didn’t expect the IPO market to reopen until 2010 or beyond.

Still, venture funds are likely to try to protect investments they’ve previously made, by steering money away from new opportunities in favor of companies already in their portfolios.

"We will likely see a marked slowdown of new investments as venture capitalists turn their attention to supporting existing companies," said Mark Heesen, NVCA president.

Despite the overall slowdown expected in venture funding, 48% of venture capitalists predicted increased investment in clean technology businesses, ranking that sector at the top of list of industries likely to get more funding.

The life sciences industry, including biotech, ranked second.

On the flip side, semiconductor entrepreneurs may go begging for money: 79% of survey respondents predicted a drop in venture investments in that industry next year. And 71% expect less funding for the media/entertainment sector.

-- Tom Petruno

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