Venturing a guess on the future – Investors carefully test water for next big thing

Venture-capital investing may be no stronger than it was in 1996, but fund managers are looking at several sectors that promise to lift the industry out of its doldrums in the next few years.

Jane Larson
The Arizona Republic

That was the cautiously optimistic outlook from Wednesday’s opening session of the annual Arizona Venture Capital Conference, held at Marriott’s Camelback Inn. Investors gave this rundown of where they are seeing opportunities and what they are being wary of.

Biotechnology

The opportunity: Biotech is the most active sector of venture-capital investing at the moment, said Arnold Oronsky, general partner of Interwest Partners.

The Bay Area firm thinks drug/device combinations, either injections or implants, will develop as more efficient ways to treat diseases. It also likes gene therapy and, even better, vaccines that can influence a disease before it starts.

The downside: Discovery-stage companies will take too long to make money.

Medical devices

The opportunity: Sales, the number of publicly traded firms and market capitalizations have been growing for medical device companies, said Mark Wan of Three Arch Partners.

Like biotech, the industry is highly regulated, but the time to market for its products is shorter, he said.

The downside: Plenty of companies are working on devices to help with spinal problems, heart disease, obesity, and neurological problems like strokes. Those are top problems to solve, but venture capitalists should not fund too many of the firms because not all can succeed, Wan said.

Nanotechnology

The opportunity: The federal government will be spending $3.7 billion over the next four years to fund nanotechnology research, said Josh Wolfe of Lux Capital.

The discovery of new structures such as carbon nanotubes, the market demand for smaller and smaller computer chips, and the accelerating pace of patent awards also make for a favorable future for nanotech, he said.

The downside: There is already an Internet-like hype growing over nanotech.

Semiconductors

The opportunity: Semiconductor start-ups that can develop products that use low amounts of power, run at high speeds and store vast amounts of data catch the interest of Ron Yora of Tallwood Venture Capital.

The downside: Start-ups will have to deal with the increasing complexity of manufacturing processes, the growth of Asia as a market and a supplier, and the continuing combination of communications and computing, he said.

Software

The opportunity: If you look beyond biotechnology, medical devices, nanotechnology and semiconductors, software will be needed to run things, said John Hall of Horizon Ventures.

He looks for sectors where software will be needed and used, such as in nanotechnology, where software will bridge the gap between materials and semiconductors.

The downside: It’s hard to tell whether a software idea is really a feature, a product or something that will make an entire company, he said.

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