- The Washington Times - Friday, May 5, 2000

Figures released Thursday show venture capitalist firms are increasingly flocking to the Washington, D.C., area, bringing with them millions of dollars in annual investments that fuel the growth of technology companies.

Between January and March of this year alone, 92 technology companies in the area received $944.48 million. In the same period last year, 36 companies received $253.83 million, according to the Arlington-based National Venture Capital Association (NVCA).

"Venture capital has become very important it has become part of the engine that drives development of new business in the area," said Stewart Frankel, partner and managing director at Grotech Capitol Group in Timonium, Md., which invests in high-tech companies.

The region's technology companies number just under 13,000 and have become a lure for venture capital firms, which have doubled in the past five years.

In 1995, the District saw a total venture capital investment of $1.7 million. Last year, that amount was $755.6 million. Maryland went from $88.8 million to $752 million, and Virginia from $135.4 million to $1.4 billion.

These investments are "incredibly important," said Jeanne Metzger, a spokeswoman for NVCA. "[Venture capitalists] are investing in the most innovative companies in the area."

"In the grand scheme of things, [technology] may be a small sector, but it's the growing sector, and the companies that are driving the economy," she said.

Stephen Fuller, an economist with George Mason University, said the importance of the ballooning high-tech sector "is far greater than its size."

Tech companies have become favorites with investors because of the fast profit return rate. Ten years ago, it took investors five to seven years to see profits from an investment. Today, that return rate has been shortened to 18 months to three years, said Charles O. Heller, senior principal at California's Gabriel Venture Partners and former director at the University of Maryland's center for entrepreneurship.

As Washington's high-tech community grew, investors from New York, Silicon Valley and Boston began flocking to the region. Venture capitalists that were already here, like Grotech, have expanded as demand for their services increased. When the firm was started 15 years ago, it had one office and $12 million in funds. Today, it has three local offices and about $500 million in funds.

Angie Kim of EqualFooting.com said when the company she founded looked for funding last year, there were plenty of sources.

After the company ran into some difficulty finding funding, Ms. Kim said, a venture capitalist took a chance. "Then it was easy," she said. "VCs actually were bidding against each other to give us money, so we ended up having to turn down a few."

EqualFooting, of Sterling, Va., a virtual market where small businesses and suppliers of industrial and construction products can meet and conduct business, closed its first round of financing with $8.5 million in November. It is now finishing its second round of financing with about $60 million.

"There were so many VCs to talk to. So, so many," she said. "And we did talk to so many."

Had Ms. Kim and her two partners looked for funding in the mid-1990s, their luck would have been different.

Leo Scott and his partner started Clara Vista Corp., a Web development company, in 1995. Inexperienced in the world of high-tech financials, they didn't seek investors but joined their savings to open the business.

Few firms existed in the area at the time. In 1995, there were about 25 venture capital firms locally, while today there are 48, according to the NVCA.

"These days money comes cheap," said Mr. Scott, whose company has since been acquired by a large firm. "Yet getting several million dollars of funding is not as easy as some people might think. It's just much easier than it was a few years ago."

Some say venture capitalists are a little late to come to Washington, as the Internet boom threatens to slow down.

"Sanity is beginning to return to the marketplace because the bloom is off the rose of Internet companies that will never be profitable," Mr. Heller said.

Still, he said, venture capitalists are "absolutely critical" to the area's economy, "because without the capital to fuel the entrepreneurial economy, there is no entrepreneurial economy."

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