Venture-Backed Start-Ups Seek Stimulus

The next time a VC drones on about how crucial their contribution to a vibrant economy is, remember this article. Or remind them that Microsoft seemed to do just fine without their services.
From the Wall Street Journal:

Venture capitalists are increasingly focused on a fresh funding source: Washington, D.C.

Venture-capital investors see Washington's economic stimulus program as a potential financial boost for the hard-hit technology firms and other start-ups they own. Of particular interest is more than $60 billion earmarked for four sectors widely invested in by venture-capital firms: environmentally clean technology, rural Internet broadband, cyber security and health-care information technology.

In addition to slack demand for their products amid a recession, small start-ups are finding it difficult to secure the cash infusions many need to stay in business during their early years. Stimulus funds could address such challenges by creating markets for their products and giving them cash injections. For some start-ups, venture investors say, money from the Obama administration could be the difference between survival and failure.

Not long after the $787 billion stimulus package was unveiled earlier this year, Tom Scholl, a partner at venture firm Novak Biddle Venture Partners in Bethesda, Md., directed one start-up company he invested in to draw up its own "stimulus plan" -- a blueprint for getting a piece of the funding.

Mr. Scholl then canvassed Washington law firms for information on how to apply for funds. He also suggested that executives of the firm, wireless start-up DigitalBridge Communications Corp. in Ashburn, Va., prepare dummy applications for quick filing to the government.

"We wanted DigitalBridge to be first in line" for stimulus cash, Mr. Scholl says. "Washington has become a new bank."

Venture capitalists like Mr. Scholl, who put money into young companies and help nurture them with the aim of profiting later when the firms go public or are sold, are turning to Washington to boost the prospects for their investments, not unlike ailing banks and auto makers.

Many venture-capital firms are hiring law firms and attending seminars to help their start-ups snare a slice of the stimulus pie. Some venture capitalists are investigating how the stimulus program might open new investment areas....MORE