VC firms grow more conservative after Sept. 11

Venture capitalists are pinching their purse strings even tighter these days.

"The environment is pretty tough," said Hal Wilson, managing director of Northwood Ventures in Syosset. The vast majority of venture funds have really pulled in their horns to focus on existing portfolio companies,

Venture capitalists across the country had already bridled new investments as the economy started to slide last year. The recent terrorist attacks and increasingly shaky financial environment have dried out the capital market even more, as investors defer new commitments or hesitate to pour money into existing portfolio companies.

"In light of the Sept. 11 events, venture capitalists are working hard to salvage and stabilize their portfolio companies and relegating themselves as far as now deals are concerned," said Jeffrey Bass, chairman of Long Island Venture Group.

Wilson said his company has significantly reduced new investment activity and shifted its interest to backing fully funded business plans, if any at all.

Similarly, Bob Brill of Newlight Management in Jericho, said he is examining the cash needs of companies and focusing on investments that will carry businesses for at least two years.

"We are not telling companies that we were interested in six months ago that we won't invest," Brill said. "But we are being a little more cautious and making investments at a slightly slower rate."

Northwood partners has made four deals over the last 12 months, about two less than usual. And only two Long Island companies seeking funding have secured capital this year. Bass predicts that no new investments will come to fruition during the current quarter.

"Venture capitalists are closing up shop on some portfolio companies, stabilizing others and rethinking potential new ones," said Bob Sturm, partner at PricewaterhouseCoopers.

Venture capitalists and other financial experts anticipate that investments will pick up with the rebound of the economy sometime during the first or second quarter next year, but not to 2000 levels.

With the dawning of the dot-bomb era and Internet companies veering to the wayside, the 400 investments in the New York metropolitan area totaling $6 billion by the end of the third quarter in 2000 will likely go unmatched for some time. By contrast, only 175 investment deals have moved forward this year totaling about $2 billion, numbers that look more like those of 1998 and 1999, according to Sturm.

"The environment is tough," Scott Smolka, president of Reactive Systems, said about securing capital. Smolka said he's been seeking $4 million since last September for his Port Jefferson-based company, which sells tools and services for embedded-software design automation.

Larry Mincer, president of Video Design Software, said he's scaled back funding ambitions in response to discussions with the venture capital community.

At the Seventh Annual Long Island Capital Forum in June, Mincer was seeking $15 million for his Melville company's custom software and systems for broadcast television.