Study: VC-Backed Dot-Coms Need Quality Time

With the initial public offering (IPO) market continuing to languish, a report released Wednesday by IDC advises venture capitalists that the current economic climate makes it more important than ever to maximize the attention they provide to each firm in their portfolio.

"For venture capitalists, understanding some of their portfolio companies' most acute operational challenges and needs is critical to their success," said IDC senior analyst Nicole Weber. "Now that the economy is slowing, it is imperative that venture capitalists work longer on projects and help with more value-added resources."

As part of its report, IDC interviewed 300 recipients of venture capital funding. Among the top operational challenges cited by the respondents were recruiting talented employees, building a brand and turning an idea into salable product.

IDC said that venture capitalists can help ease these concerns by having recruitment and partnering programs in place that can be tailored to each company's needs.

Helping Hand

In addition, IDC found that venture capitalists must be more proactive, identifying the types of resources and services recipients would like them to provide.

For instance, 80 percent of those surveyed that did not receive help with relationship development would like their venture capital firm to provide such assistance in the future.

The respondents also indicated that they would like more assistance with top-level recruitment, but are not interested in receiving marketing or infrastructure services from their venture capital firm.

Vision Quest

Overall, IDC said that venture capitalists need to set expectations, enact mentoring programs, and become more specialized and technology savvy.

"It's okay to be a visionary, but venture capitalists should stick to the areas in which they have or can quickly acquire strong domain expertise," said Weber.

VC Funding Slows

A separate report released earlier this year by National Venture Capital Association and Venture Economics illustrated how the current e-commerce downturn led to a slowdown in venture capital investments during the fourth quarter of 2000, after a nearly five-year run of strong growth.

The quarterly report found that investors shelled out US$19.6 billion during the period, a 30 percent decline from the third quarter of 2000.

However, the trade group said investors sunk $103 billion into emerging companies in 2000 overall, a new record and 73 percent higher than in 1999, when $59.4 billion was invested.