Echoing the mantra venture firms across the Southeast have been chanting for the past year or so, institutional investors say the only thing holding back venture investing in the region is a lack of entrepreneurs and good ideas.

Speaking on the final day of the Council for Entrepreneurial Development’s Venture 2002 conference Wednesday, a panel that included representatives from Duke Management Co., the University of North Carolina and the North Carolina Treasurer’s Office, said large investors share in the blame for the excesses of the Internet boom and bust a few years ago> But, they added, the only way to get deals flowing again is to increase the number of startups.

“That is the rate-limiting factor right now,” says Mark Yusko, UNC’s chief investment officer, noting that the region has plenty of innovative research, untapped money and knowledgeable venture capitalists.

Andy Silton, the state’s chief investment officer, says a critical mass of entrepreneurs would spur more capital formation across North Carolina and give the Treasurer’s Office a chance to deploy more state pension fund money into venture funds. The state currently has $75 million invested in venture capital, less than 1 percent of its $60 billion pension fund portfolio.

Entrepreneurs should encourage their friends to start businesses, according to Yusko, who notes “the spousal nudge” always is an effective way of pushing a mid-level manager out of a large company to form his own firm.

But James Mason, director of private equity at Duke Management, which invests some $275 million with venture firms, says that even with a plethora of startups to fund, the venture community could choke off any growth unless everybody gets on the same page.

‘A difficult balance’

“We need to make sure the interests of the limited partners and the general partners and the general partners and the entrepreneurs are aligned once again,” Mason says, noting that the Internet boom changed people’s perspectives as to the size and time frame of returns and the values put on companies.

“It’s a delicate balance,” he says. “You’ve got to give the company enough cash to move forward in exchange for equity, but you’ve got to leave the entrepreneur with enough incentive to keep things going.”

All three men took turns saying “mea culpa” for the investment community’s role in fueling the dot-com bubble Some venture funds never should have been allowed to close on the piles of cash they did, they point out, and much of that money remains uninvested because of the slower market.

“As an institutional community, we probably had a responsibility to pull back sooner,” Silton says. “We may not have known where the top (of the market) was, but the warning signs were there.”

The bust has produced at least one good side effect, Yusko says, in that “marginal people” are no longer involved in the industry. Now, he says, UNC can work with “relatively young, relatively poor and relatively small firms” to invest the $75 million it has committed to venture capital because they’re more interested in producing returns than working on their golf handicaps.

The panel discussion was a first for CED’s annual venture capital conference, Vice President Dan Allred says. The organization wanted to provide investors in attendance with a different perspective and a break from the string of presentations by technology companies seeking funding.

Drawing outside VCs

Attendance at the event was down from last year, from 1,100 to about 900, but Allred says CED was pleased that about a third of the attendees were venture capitalists, including a few dozen representatives from venture firms that had never attended CED’s previous events. The organization actively marketed the event to bring in VCs from the Northeast and West Coast, he says.

“The goal of this event is to attract venture capitalists and introduce them to the technology companies in the area,” he says. “With one out of three people here a potential investor, I would say this conference is a success.”

Nineteen companies from across the state made presentations to investors Wednesday, mostly seeking follow-on funding rounds.

Cropsolution, a Morrisville-based company that uses a chemistry technology platform to produce insecticides and herbicides, even announced the completion of a $6.4 million round during its appearance. Eleven “early-stage” firms made their pitches for venture money on Tuesday.

“We’re familiar with most of the companies here today,” says John Ciannamea, senior managing director of Charlotte-based Academy Funds. “This is more so people from outside the area can become familiar with (the companies) and vice versa. You’re not going to see any local firms investing because of the presentations today.”