- The Washington Times - Friday, February 2, 2001

The DC Tech Council brought together venture capitalists and technology companies seeking funding yesterday, with all the ingredients of a standard tech event chief executives, personal digital assistants and reams of business plans.

But one crucial element may prove to be in short supply money.

CEOs of some tech start-ups were skeptical about their chances of getting money after the Nasdaq Stock Market's 39 percent fall last year, declining valuations at tech companies, and the release of a report this week that venture capital investment fell nearly 31 percent in the fourth quarter.

"It would be unwise to assume you will get capital," said Scott Shaw, chief executive of Fishbowl, an Alexandria, Va., software company. "In today's environment you should no more count on venture capital funding than on winning the lottery."

Mr. Shaw's 10-month-old tech company was one of just 12 businesses invited to make a formal pitch for money yesterday at the DC Tech Council's second annual venture capital fair at the Ronald Reagan International Trade Center.

Venture capitalists are by no means shunning the tech companies they have funded aggressively the past four years.

Still, the amount of money invested nationally fell in the fourth quarter, the first decline since the third quarter of 1998.

Venture capitalists invested $19.6 billion in fourth quarter last year, down 30.7 percent from the $28.3 billion in the third quarter, according to the National Venture Capital Association and Venture Economics, a financial research firm.

Because of the turbulent public markets and declining interest in initial public offerings, some investors yesterday at the DC Tech Council event said they expect venture capital investment to slow for up to six months.

That could threaten some cash-starved companies.

"It's going to be a tough three to six months. It's not going to be the robust environment we saw in 1999," said Reid Curley, vice president at investment banker Deutsche Banc Alex. Brown.

That reality has spread to the people running tech companies.

"The last two years was an aberration," said Clifford L. Brody, the 58-year-old founder and chief executive of e-Redeem Inc., a District of Columbia-based software company that markets promotions to airline customers with unused frequent-flier miles.

But Mr. Brody remains confident he will get the $2 million he is looking for, even as venture capitalists grow more skeptical and take more time to examine potential deals. Venture capitalists also are reserving cash to make second-round investments in companies already in their portfolio, rather than make new investments.

"I believe the money is there," Mr. Brody said.

Others agreed.

"There is an abundance of capital for good companies," said Richard Coleman, chairman and chief executive of Symbionautics Corp., a District-based company with natural language comprehension software used to support speech-recognition technology.

With just 12 companies invited to promote their product or service, Mr. Coleman was one of many executives forced to make informal pitches for $250,000 during breaks at the daylong event.

Jon Rosen, president and chief executive of BigSoftE Inc., a Germantown-based publisher of business software information, also was confident.

"The [venture capitalists] are crossing off a lot of deals earlier. They are funding fewer companies. But for those of us who have raised money in the past, you're sure you will get it," said Mr. Rosen, who raised $1.5 million since starting his business last year. He was making a pitch for another $2 million.

But investors said the tightening venture capital market has threatened young companies, like those at yesterday's event.

"The sad thing is that there are a lot of good companies that are not getting funded. We have to think about later-stage investments in companies we've already funded to support them," said John Burke, venture capitalist at ABS Ventures, the Baltimore-based venture affiliate of Deutsche Banc Alex. Brown.

The frenzy of investment may be over at venture capital firms, but entrepreneurs remain hopeful they won't get left out.

"You make your own luck," said Mr. Brody, "but you need some luck, too."

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