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Marc Nevinski <br /> rom: TedGenesis@aol.com <br /> nt: Monday, July 02, 2001 9:30 PM <br /> i o: mnevinski@ci.elk-river.mn.us <br /> Subject: Analysis of Venture Capital Markets <br /> Genesis Business Centers, Ltd. <br /> 3989 Central Avenue NE <br /> Columbia Heights MN 55421 <br /> 2 July 2001 <br /> Elk River EDA <br /> City of Elk River <br /> Elk River City Hall <br /> Elk River, Minnesota <br /> Re: Status Report-Venture Capital Markets <br /> Attention: Mr. Marc Nevinski <br /> Dear Marc: <br /> The current status of the venture capital markets is literally bad and good <br /> simultaneously. It is bad in general in that most venture capital funds have <br /> experienced significant depreciation in the value of their holdings due to <br /> the severe contractions experienced when the 'dot.coms' turned into <br /> 'dot.bombs'. These fund managers have now become as cautious as they had <br /> 411 reviously been reckless in pursuing concept plays lacking in substance. <br /> hey continue to avoid early stage investments and tend to remain in late <br /> stage or'mezzanine'financings such as the recently reported investment of <br /> $15 million by St. Paul Venture Capital in Lawson Software just a few months <br /> before Lawson Software announced its Initial Public Offering. Lawson <br /> Software is a truly exceptional company; it is also a well financed and well <br /> managed operating company that is largely beyond the scope of traditional <br /> venture capital investments. Nonetheless, the large venture capital funds <br /> have continued to ignore the 'start up' companies thus leaving 'open field <br /> running'for communities such as Elk River with good support systems for <br /> emerging technology based entrepreneurial companies. <br /> It is good in particular for the Elk River Incubator Program because the <br /> funding that early stage technology based entrepreneurs require is still in <br /> limited supply. This is good for the Elk River Incubator Program as the Anoka <br /> Sherburne County Capital Fund (ASCCF) and the Elk River Investment Club <br /> (ERIC) continue to provide seed capital ( early stage venture capital)to <br /> these entrepreneurs. Further, the word is out among entrepreneurs that Elk <br /> River welcomes technology based companies and puts the resources into these <br /> companies in order to grow successful companies there. <br /> The business and financial community has recognized the success of the ASCCF <br /> and ERIC in making an investment in Northstar Photonics back when the company <br /> was a struggling enterprise. And now , after CYMBET Corporation's recent <br /> placement of$4.8 million of equity securities while still an incubator <br /> stage company, Elk River is becoming strongly associated with world class, <br /> emetneehelping k <br /> •ttractive locationechforology similarentrpris'breakthrougs. This ish' companies.ElRiver to become an <br /> Recently, Micro Surfaces, Inc., (MSI) a specialty chemistry company with <br /> applications in the field of nanotechnology, won honors in the University of <br /> 1 <br />