Nature Brings Uncertainty and Opportunity –

September brought not one but two monumental events to the United States-the devastation of our Gulf Coast from Hurricane Katrina and the passing of Chief Justice William Rehnquist. In the course of seven days, nature proved once again that we humans are no match for its universal plan. Whether its impact results in a massive loss of life, or the death of a single human being, we are inevitably faced with nature’s aftermath and the proverbial questions surrounding what the future holds.

Within days of Hurricane Katrina, policy makers and the media were zeroing in on the economic impact to the country. The one subject most talked about has been our inadequate energy supply and soaring fuel prices. Where there is a quandary, there is a likely a venture capitalist looking for a way to shift the paradigm. Energy is no different. In fact, venture capitalists have been focusing on this opportunity in growing numbers over the last 18 months. In 2004, venture capitalists invested $95.1 million into alternative energy companies. In the first half of 2005 alone, we have already invested $139.6 million. Additionally, the passage of the energy bill in August will direct hundreds of millions of dollars into improving our energy infrastructure and the reliability of the electrical grid, as well as funding basic energy research at our national labs. With this governmental support, combined with the sense of urgency raised by Katrina, we would expect more investment in this area in the coming year.

Another area that VCs have been quietly grooming but which promises to receive more attention now is the homeland security sector. After Sept. 11, 2001, we saw many companies alter or augment their business plans so that their technologies could address the challenges associated with protecting our citizens when disaster strikes. We need more of this thinking today. With many of the communications systems failing in Katrina’s aftermath, there is still room for further innovation in this area. The government needs infrastructure that can withstand disasters. Some of that technology may already be in use in other applications. Venture capitalists have the best view of this potential. We owe it to ourselves to take a good look.

Hopefully the energy and security companies that will ultimately supply these innovations have already been funded and are well on their way to commercializing this much needed technology. Yet, we know that to make the strides necessary to address the challenges brought to light by Katrina, these sectors and others will need more VC dollars. It is here we can do our greatest good. Yet, we must be careful not to inundate these sectors with too much money, or the venture community will have a different type of flood with which to reckon.

On the Hill

Back in Washington, D.C., we will be dealing with a more deliberate but no less epic change. The replacement of two Supreme Court justices will impact decisions across the U.S. court system. In the next decade, issues that are critical to the venture community will go before a court that will look very different than the one that was sitting this past summer. Copyright, patent, immigration, privacy and class action issues may make their way to the highest court in due time. With so many decisions made on a 5-4 vote, there will be no way to predict the impact of the new justices to the entrepreneurial community, except to say it will be an uncertain ride.

One thing is for sure. The country’s attention is clearly diverted and will be for weeks and months to come. And while Congress and the Administration are focusing exactly where they should be, public policy issues that were slated to be addressed this year are no longer a priority. Tax reform, the capital gains rate, patent reform and the eligibility for SBIR grants will form a long line behind federal relief efforts and the confirmation of the new justices. The virtue of patience-one that the venture community has embraced and upheld over the years-will serve us well.

Mark Heesen is President of the National Venture Capital Association. He may be reached at MHeesen@NVCA.org.