VC opportunities still abound.

• Author: Datin, Jim
• Position: VENTURE CAPITAL - Reports of National Venture Capital Association - Report

Though the first half of 2008 has been a drumbeat of economic doom and gloom, a robust venture capital environment still exists for those who invest and seek capital.

To be sure, it's not a pretty picture overall. Food and fuel costs, core inflation, unemployment, debt and foreclosures are up. Meanwhile, retail sales, housing, consumer confidence, liquidity and the markets are down. That means growth is extremely challenging for startups and young companies in the financial, housing and related sectors.

But several industries--including health care and clean technology--continue to evolve and deliver new ideas, products and services that are attracting capital. And a healthy fundraising environment plus continued innovation in the United States and across the globe have kept venture capital abundant, despite an unstable economy.

Buyer's Market

This year's second quarter was the first without a venture-backed initial public offering in the U.S. since 1978, according to the National Venture Capital Association. Meanwhile, acquisitions in the first half of the year were down 28 percent versus the same time period last year.

A strong fundraising climate, however, enabled many venture firms to raise enough funds in 2006 and 2007 to continue the hunt for new and interesting opportunities, as well as consider follow-on investments in companies they otherwise planned to take public or sell. Though it takes an average of 8.6 years to take a company public, market conditions are allowing companies more time to mature, as well as secure additional capital, under the knowledgeable and supportive eye of the investor.

In addition, intense investment interest remains from funding sources such as pension plans and endowments that are balancing their holdings across multiple alternative asset classes. Of the numerous alternative assets sectors (including venture capital, buyouts, private equity, mezzanine financing and real estate), venture capital remains the best investment. Despite its long-term focus, venture capital returns have been consistently better than, for example, Nasdaq or Standard & Poor's offerings.

And though many exit strategies have been delayed, there's no shortage of investment opportunities. New discoveries in life sciences, the growing importance of clean technology and unceasing information technology development continue to fill the pipeline. Also driving the buyer's market: valuations have come down significantly, giving venture...