By Allan Maurer
SILICON VALLEY, CA –If there is a growth business in this economy, it is e-commerce, says Patrick Kerins, a general partner with venture firm New Enterprise Associates, which invested in Advertising.com, now part of AOL, and RTP-based ChannelAdvisor. “Christmas was up for ChannelAdvisor, as it was generally for e-commerce, as opposed to offline retail. Overall, it’s still a growth business,” Kerins says.

Kerins is one of many venture capitalists, entrepreneurs and business executives you can hear at the 3rd annual Southeast Venture Conference sponsored by TechJournal South, this year March 11-12th, 2009 at the Intercontinental Buckhead in Atlanta, Georgia. (For more information see: www.seventure.org).

Kerins says that e-commerce continued to thrive in 2008, “Although not as much as one might have guessed from January 2008. Amazon was strong, eBay weak, but overall, it’s a growth business,” he says. He cautions that “If we have quarter after quarter of this difficult environment, we may see stresses and strains on smaller e-tailers.”

Kerins says NEA stayed pretty active in 2008, doing about 30 new deals. “It’s not unusual for us to do two or three deals a month,” he says. “We only did a few in the fourth quarter because of the extreme volatility in economy.

“Many of have been spending time with our portfolio companies, making sure to look at their performance and budgets, looking to see if they need any expense control so we could get our arms around that quickly and if they needed to raise capital, to get on that quickly. So there was a significant slowdown due to those activities.”

Dealflow in India and China slowed all year, he notes. “In the first part of the year, valuations looked way too high for us,” he says. “Then, with the crumbling of the equity markets there, we found it difficult to reach agreement on how companies were going to be valued.”

“We were relatively more active last year in healthcare and alternative energy than in IT, the three legs of our stool. In 2008 we did from 10 percent to 15 percent in alternative energy, and evenly split deals between healthcare and medical devices. In many recent years we did more IT investing than in healthcare, but biopharma has long lead times and is not so directly related to a quarter-to-quarter perspective, which is much more long term.”

He points out that “Some of the best performing stocks in the country last year were large biopharma stocks.

Up until the third quarter last year, Kerins says, “We would have said our 250 active companies were performing fairly well with many positive metrics. But they suffered from the same lack of liquidity as the rest of the industry.”

Companies should forget about IPOs this year, he notes. “The right level of expectation for IPOs this year is near zero,” he says. “That doesn’t mean a few exceptional companies may not find their way out. But the U.S. and Asian stock markets have a lot of issues to sort out before they find the optimism that usually fuels that space.”

Although there has been talk in the venture industry of some limited partners having trouble meeting their commitments to venture funds, Kerins says “We’ve seen no evidence of that,” despite “a lot of chatter.”

“We have no industrial companies in our LP base and most major VC firms don’t either,” he says. “Direct investments in VC firms from banks and investment firms in general are also exceedingly low. It could happen that LPs in major funds of funds or endowments try to maintain some balance,” he adds.

“Most of these LPs have not received any material cash distributions from the venture community for quite some time. We continue to send cash back yearly, although not as much as we would like and some VCs are not sending back any.”

He says some LPs may want out, but they’re more likely to sell their position at a discount to others more flush with cash than to default.

“Our expectations for the remainder of 2009 remain realistic,” he says. “Maintaining cashflow and profits for our portfolio companies is critical. The world at large is not looking for companies to grow significantly and massively through this downturn.

“Those who survive will thrive.”

NEA does foresee putting more money into its portfolio companies this year, Kerins says. “WE have done top to bottom portfolio profiling to make sure they have adequate reserves. We’ve estimated down the amount of investments from outsiders and increased how much we may supply.”

He does expect to see the venture business “slow substantially” this year. “We do expect the volume of VC deals to decrease in 2009, by how much is anyone’s guess.” In some cases, companies will have to swallow down rounds, he adds.

NEA, he says, continues to make bets in healthcare, which it expects to pay off in five to seven years, and continues to see technology as a service as a very good space, “especially those with recurring revenue models and technology that offers clients the ability to save money.”

It will also continue to invest in alternative energy, he says. “We feel we’re well suited for it. It is capital intensive and smaller firms have trouble getting in early, so it’s a good area for us when we can get good technology. It requires patience, though.”

Kerins says he hopes to see early indications that President-elect Obama’s plan is succeeding and that banks are lending again.

“There is a Wall Street adage,” he says, “that the markets are based on capital, confidence and credit. Right now there’s not a lot of confidence and zero credit. If this new administration can help with the “c” that stands for confidence, it could really help with credit.”

In any event, he says, “We continue to be active in Southeast investing. In addition to ChannelAdvisor, we think highly of Suniva in Atlanta. We would love to find more deals to do down there.”

Online: www.nea.com/

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