Venture capital backing for technology should impact security sector

Sunday, February 1, 2004

ARLINGTON, Va. - An improvement in venture capital fund-raising activity overall, and a continued interest in security-related companies in particular, is on the horizon for this year, according to the National Venture Capital Association, based here.

Jeanne Lazarus Metzger, vice president-business development and public affairs, said although she has no hard data related to venture capital funneling into the security sector, “we are definitely seeing an increase in security-related companies” getting attention.

Venture capital providers in general, Metzger noted, “invest in companies with long-term growth potential.” Right now, she said, that includes companies focused on software and technology-related products and services. Many of these products and services, she added, “can be applied to Homeland Security, but they also have applications in other commercial markets.”

Furthermore, she said, companies in the life sciences or biotechnology arena, including the merger of biotechnology and IT as related to biometric solutions, have an opportunity for investment.

And many companies that received venture capital before the events of Sept. 11, 2001, are now expanding into the security hardware or software areas, Metzger said.

In its forecast for 2004, released in late December, the NVCA predicted the industry would continue at a pace of about $4 billion in venture capital investment per quarter, “with the possiblity of a slight uptick as investor confidence returns.”

However, the NVCA noted most funds will be smaller than previous ones as venture capitalists continue with a prudent, long-term investment strategy.

In addition, the organization said investment in early stage companies may see an increase as venture capitalists shift attention from existing portfolio companies to new ventures, which would then become the IPO candidates of 2008 to 2011.

The NVCA represents about 450 venture capital and private equity groups.