solid-state lighting industry, he said, had reached a technical stage where it needs outside funding to pool its resources and coordinate R&D efforts. He made the point that in the not-too-distant future, when systems are ready for commercialization, the venture capital industry would likely be interested in helping and participating.

The Rapid Growth of Venture Capital

He sketched a picture of the rapid growth of the venture capital industry over the last five years. While he predicted some retrenchment after the stock market decline of 2001, the industry has the capacity, even in his own small partnership, to take technologies all the way from the lab to the marketplace. In addition, the growth of the industry means that it is more competitive and individual firms have to seek promising technologies and take the great risks.

This has not always been the case. Until about 1995, the venture capital industry invested a few billion dollars a year in new enterprises. The average investment required about seven years from time of investment until it was possible to sell the investment. In the last five years, he said, the size of the industry has mushroomed to a hundred billion dollars or more per year. This growth attracted many new people and firms to the business and many of the businesses they invested in had questionable or no technology content.

The Stock Market Correction Is Not All Bad

The 2001 stock market correction, he suggested, would be beneficial in the longer term, as people begin to correct their thinking about the venture capital industry. With the NASDAQ down by about half, there is half as much money to invest; many venture capital funds have vanished, and more will follow. Those that remain, he said, will regard their investments more soberly. The returns will not be as exciting or as quick, and investors will expect to be paid for results rather than promises. Having a smaller pool of money (perhaps $50 billion a year rather than $100 billion) will not be all bad. This amount is still an ample pool, and it will continue to be fed by those for whom venture capital is part of their allocation model: wealthy individuals, university endowment funds, and pension funds.

A Partnership Between Venture Capital and Industry

A key point, said Mr. Domenik, is that over the last 5 to 10 years there has evolved a partnership between venture capital and industry, especially in the United States. This bond is so strong that industry has now come to rely on venture-capital-funded enterprises for the commercialization of new technology. One reason for this dependence is that when a private firm underwrites a $50 million



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