Venture capitalists are keeping a tight hold on their money these days, a development that portends tough times ahead for startup companies that were one of the engines of Utah's former red-hot economy.
And it likely isn't going to get better anytime soon.
"Several years ago a company with good long-term prospects could come to a venture capitalist [and get funded]," said Curt Labelle, managing director of Tullis-Dickerson, a Stamford, Conn.-based venture capital firm specializing in the health care industry.
Now, many long-term bets by venture capitalists are on hold and those companies that do get funded are undergoing intense scrutiny before commitments are made.
Labelle was the featured luncheon speaker at the 25th annual Investors Choice Venture Capital Conference held Thursday at the Zermatt Resort & Spa in Midway. The conference was hosted by the Wayne Brown Institute, a Utah organization that promotes entrepreneurship.
Venture capitalists specialize in investing in startup companies and help fund existing companies that they believe have strong growth prospects. They often will invest in companies for a number of years, hoping eventually to profit when the company goes public, or is taken over or merges with a larger corporation.
Yet lately, many venture capital funds have had their own problems raising the money they need in order to invest in other companies.
One reason is that the partners that many venture capital funds rely upon for capital have themselves been battered by the downturn in the stock market.
"Their funding has hit a brick wall," Labelle said.
And the prospects that venture capital funds will be able to get the desired returns when one of the companies they have invested in goes public has dimmed in recent years.
"The IPO market is gone. There is nothing going on right now," Labelle said.
"In 2008 there were only six IPOs, and that is atrocious."
And while there still are some mergers and acquisitions taking place, Labelle said they aren't providing enough liquidity and are not making up for the lack of initial public offerings.
During a panel discussion, several venture capitalists familiar with the Utah marketplace suggested that companies in need of capital "bootstrap" their fund raising by turning to nontraditional sources, such as government grants.
"Get as far as you can with angel [individual] investors and money from family and friends," said Tod Francis of Shasta Ventures.
"If your business in not doing well right now -- if it operates in a down sector -- it will be difficult to raise capital," said Paul Ahlstrom of vSpring, a venture capital company based in Salt Lake City.
And for those companies that already have raised venture funding, Francis said operators should treat their capital as precious.
"There may not be more [for awhile]," he said.
