Information technology investors say fate is tied to government

Venture capitalists are bullish about the information technology sector in the new year, with investments expected to be on the rise.

But technologies focused on energy efficiency and medical devices — two areas that have gotten a lot of buzz in recent years because of Washington’s policy focus — are not the subject of as much optimism as in previous years, according to a survey released Tuesday by the National Venture Capital Association and Dow Jones VentureSource.

Despite a lot of interest from lawmakers, the clean tech industry has suffered from a lack of action by Congress. Venture capitalists are also concerned about uncertainty surrounding the health care reform law and cumbersome agency approval processes. As a result, investment forecasts for the clean tech, medical device and pharmaceutical drug sectors are lower than the predictions for other markets, such as consumer Internet technologies.

“The link between government and the success of venture capitalists’ portfolio companies is becoming more and more acute every year,” NVCA President Mark Heesen told POLITICO. “The reality is that the government’s role is increasing.”

According to the report, 82 percent of venture capitalists expect increased investment in the consumer Internet space, including software and websites, in 2011.

By contrast, only 38 percent of venture capitalists expect increased investment in the energy sector. In the medical devices sector, only 35 percent expect investments to rise, and only 33 percent are optimistic about the biopharmaceuticals sector in the coming year.

The lack of concrete legislative and regulatory action, as well as uncertainty about what the incoming Congress will do, have in part contributed to the weaker forecasts, several Silicon Valley-based venture capitalists told POLITICO.

While administration officials have lauded the value of clean tech innovation, for example, no major energy legislation has passed. Though the cap and trade bill passed the House in 2009, it faltered in the Senate earlier this year. With Republicans assuming control of the House in January, it’s unlikely that energy legislation will be considered again in the near future.

While investors credit the Department of Energy for introducing programs that support the clean tech sector, such as the Advanced Research Projects Agency-Energy program, they say venture-backed clean tech companies are setting their sights on opportunities abroad as U.S. energy policy still hangs in the balance.

“Now is actually a renaissance time in the clean tech sector, but the opportunity is a more global opportunity and what remains in question is the degree to which the U.S. will capitalize on this opportunity,” said Ira Ehrenpreis, general partner at Palo Alto-based Technology Partners venture capital firm. ‘‘If the U.S. government doesn’t continue to support the clean tech sector, then the great innovation coming out of the venture-backed clean tech opportunity will ultimately be deployed around the globe.”

Venture capital investors in the medical industry blame their less-than-stellar 2011 predictions on a combination of how long it takes the Food and Drug Administration to approve a pharmaceutical drug or medical device and the large amount of money venture-backed companies in the sector require.

“It really is getting to the point where decision making at FDA is really becoming a major obstacle to VCs committing more money to the life sciences sector,” said Jack Lasersohn, general partner at The Vertical Group.

Lasersohn said the FDA focuses too much on the risk rather than the benefit of a drug or device, “and as a result, it’s taken much longer to get things approved by the FDA. And in some cases, you can’t get things approved by the FDA.”

NVCA has been pushing for FDA reform to simplify the process by which the agency approves new technologies and drugs. The organization argues that innovators can more easily get their new devices and therapies approved by foreign governments, giving companies incentives to do business overseas rather in the United States.

To a lesser degree, the health care reform bill also has played a role in the sluggish investment expectations, Lasersohn said. Republicans’ threat of trying to repeal the new law left some investors and companies in limbo.

“That health care reform has certainly created uncertainty, and uncertainty is generally something that VCs don’t like.”

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