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Show me the money: While venture capitalists invest their attention and dollars in technology firms, promising nontech start-ups struggle to find their place in the world of nondebt financing

by Meredith Erlewine

August 2000

“Raising money is a pain in the neck,” says Bob Thomson, manager of entrepreneurial programs at Ben Franklin Technology Partners of Northeastern Pennsylvania in Bethlehem. “I don’t care whether it’s a technology company or not, you’re never going to get away from that.”

But the pain can seem more persistent for a nontechnology start-up. Venture capitalists have turned their pockets inside out in hopes of ultrahigh returns on investment (ROI) from companies in high-tech industries including software, the Internet and biotechnology. Entrepreneurs in nontech industries, meanwhile, have been left with nondebt financing options that look like chump change in comparison.

According to PricewaterhouseCoopers, a whopping 90 percent of 1999’s record high $35.6 billion in U.S. venture capital investments went to technology firms. So far, 2000 investment trends don’t appear to be changing much: The National Venture Capital Association (NVCA) reports that there has been little change from 1999 regarding the industries that attract the most venture capital dollars. NVCA also reports that investments continue at unprecedented levels – to the tune of $22.7 billion during the first quarter of 2000.

So what’s a promising nontechnology start-up in search of investment capital to do in a world of B2B, B2C, Internet infrastructure and software? The fact that venture capitalists are investing at all-time-high levels and that more investment capital is available than ever before actually translates into good news for all growth companies. Even though nontechnology start-ups – and especially early-stage ones – are not the darlings of the venture capital community’s biggest players, there are other players out there looking for deals. But nobody said they’d be easy to find.

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Keywords: angel investors/network, company valuation, capital access, venture capital

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