There’s been a marked drop in the number of venture capitalists raising money. But the drop doesn’t signify economic troubles for the industry, nor is it a function of a recession, according to members of the industry. The numbers are these: In the first quarter of this year, 57 venture firms raised $6.3 billion to be invested in startup companies; by comparison, in the first quarter of 2007, 83 companies raised roughly the same amount. At first glance, this might suggest that there are fewer venture capitalists who ei... lire la suite
There’s been a marked drop in the number of venture capitalists raising money. But the drop doesn’t signify economic troubles for the industry, nor is it a function of a recession, according to members of the industry. The numbers are these: In the first quarter of this year, 57 venture firms raised $6.3 billion to be invested in startup companies; by comparison, in the first quarter of 2007, 83 companies raised roughly the same amount. At first glance, this might suggest that there are fewer venture capitalists who either want to raise money, or are capable of doing so. But the National Venture Capital Association, which published the latest statistics, said first glances — in this case — are deceiving. The reality, the organization points out, is that fund raising is cyclical and that a big burst of fund raising activity occurred last year. Those firms that raised large amounts are now investing the money in startups, and they don’t have the need to look for money again this year. “VC fund raising is very cyclical. A lot of firms have gone out in the last two or three years and fewer firms in the fund raising mode - that's why there aren't that many new funds,” said Emily Mendell, a spokeswoman for the National Venture Capital Association. She added: “The current economic conditions have not impacted vc fund raising.” That doesn’t mean that venture capitalists are immune to the effects of the economic downturn. Quite the opposite. As The New York Times reported last week, the most pointed impact is coming from the public markets having nearly stopped accepting initial public offerings of technology and other venture-backed startups. The shut down means that venture capitalists have a tougher time in the short run selling off their startups to the public. If that dynamic keeps up long enough, it could eventually make it tough for venture capitalists to raise funds. But, for now, the downturn in fund raising appears to be more cyclical than related to the immediate economic circumstances.
The European venture capital industry pulled back on financings of start-ups in the first half of 2008, according to a report released Tuesday by Dow Jones VentureSource. The number of investments venture capitalists made in young companies fell to 381 deals, a 29 percent drop compared with the same period last year. The dollar amount invested fell 15 percent to $3.1 billion. The second quarter was the worst since at least 2000, when VentureSource started tracking European data. There were some surprising geographic trends. Britain, long a leader in European technology innovation, saw venture investment fall 49 percent last quarter. Meanwhile, Germany was the leader in investment for the first time since 2001, thanks to the $124 million investment in the solar photovoltaic cell-maker Sulfurcell Solartechnik. But Mark Tluszcz, co-founder and managing partner of Mangrove Capital Partners, said the weak initial public offering market isn’t an issue. Venture investment time lines are six to seven years, said Mr. Tluszcz, whose Luxembourg firm was an early investor in Skype. “Serious venture firms are investing in and out of the market cycles, because you do have to be there when the markets pop,” he said. In Mr. Tluszcz’s view, the recent slowdown in venture investments is an anomaly. “As I look for deals and talk to people, I have never seen a time in Europe when there are so many good, young companies being started,” he said. “I’m not overly worried.” Ms. Canning said that the numbers show a silver lining: European investors financed a record percentage of early-stage companies. Seed or first rounds accounted for 44 percent of venture deals in the first half of the year, the highest since the first half of 2001.
David Hornik is a secretive sort; the venture capitalist tried (and failed) to keep his invite-only Lobby conference off the record. Even when he wants to expose himself, he stays guarded. At a SXSW... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]
As I reported Saturday, venture capitalists experienced a very poor second quarter. The industry's trade association said Tuesday that for the first time since 1978, not a single venture-backed company went public in the quarter. From the perspective of the venture capital industry, it turns out that the news was worse than I reported. If you're a venture capitalist, or a limited partner investing in venture funds, this is the part of the article where your teeth start to hurt and your temples throb. That's because venture capitalists have looked upon the opportunity to sell their companies through acquisitions as an alternative, albeit a less lucrative one, to going public. The National Venture Capital Association, the industry's trade group, largely blamed a weak economy for the trouble its members are having finding profitable exits. But it said the government was to blame too, particularly for the dearth of initial public offerings. Were it not for excessive regulation in the form of Sarbanes-Oxley, it would cost less for companies to go public and there would be more offerings, the industry group said. Some venture capitalists, as I noted in Saturday’s article, blame the industry itself, arguing seed investors haven’t been investing in the right kinds of start-ups if they hope to get the attention of Wall Street. Too many Web 2.0 companies, these critics say, were given money and not enough big growth, scalable, mass-market companies. Regardless of the reasons behind it, the timing of the rough quarter is inopportune for the industry, and not just because venture capitalists require public offerings or acquisitions in order to profit and get new investors filling their coffers. Mr. Heesen and the industry overall has been intensifying its lobbying efforts in Washington, trying to wield influence on such matters as tax and alternative energy policy. But if the venture capitalists aren't thriving and getting exits, it could begin to undermine the argument they make on Capitol Hill that they deserve a seat at the policy table because they are essential to job creation. In that respect, the difficult second quarter could be part of a vicious cycle for venture capitalists: they have trouble finding exits, they make less money and then lose some of the clout they need among policy makers whom they need to spur public offerings anew.
Fred Wilson's venture-capital firm, the paper of record tells us, "has built its portfolio making small bets on young companies." That is an excellent definition of early-stage venture capital. But is Wilson, of Union Square Ventures, to be congratulated with a glowing New York Times profile merely for doing his job? Apparently so. The real thing that distinguishes Wilson from his peers are not his practices or his profits; it is his prolixity. Wilson writes a blog read by some 25,000 people a month. Newspaper reporters can relate to him as a wordsmith rather than a financier. Also, he is in New York, which makes him geographically convenient for the media capital. The news event which prompted this profile? Read More: Venture capitalists, they're just like us , Laid-off Wall Street techs offered work at Silicon Alley startups , Fred Wilson amplifies tech's echo chamber , Assume Twitter has four or five plans to make money
As in the Jean-Paul Sartre play “No Exit,” venture capitalists are facing an existential dilemma. They are funding and developing companies with no immediate path to reward their limited partner investors. In the second quarter not a single venture-backed company staged an initial public offering, the first time in 30 years that there was a complete shutout, according to the National Venture Capital Association.Complete Story »
It’s a dreary time for Bay Area venture capitalists. Investments are slowing and exits are stalled. Venture capitalists don’t expect the I.P.O. drought to ease until 2010, according to a new survey of dealmakers by audit, tax and advisory firm KPMG. Only 9 percent of those surveyed think I.P.O. activity will pick up next year and 12 percent predict it will never again reach historic levels. A July 1 survey by the National Venture Capital Association found investors to be more optimistic, with 43 percent predicting that public offerings would pick up in the next 12 months. Only 5 percent thought it would take longer than two years. Still, they said that two-thirds of venture-backed companies were less likely to want to go public than they were three years ago. They blamed the drought on skittish investors, the credit crunch and the regulatory requirements of the Sarbanes-Oxley Act. Paul Kedrosky, an investor and senior fellow at the Kauffman Foundation, takes the more pessimistic view. He doesn’t see the I.P.O. markets opening up for several years and predicts dire consequences for venture firms. “Self-serving protestations to the contrary aside, there is no institutional venture market without regular and sizable IPO exits. With 10-year venture returns set to soon lag long term S&P returns, this is an asset class in a serious state of brokenness,” he says. Only five venture-backed companies went public in the first half of 2008, while 86 went public in 2007, according to Thomson Reuters and the National Venture Capital Association. The percentage of dollars going into first-time financings hit its lowest mark since 2004. That’s in part because venture capitalists are being forced to invest new rounds of capital in late-stage companies that they expected to have gone public or been acquired by now. Firms have extended their exit timelines by a year or more, KPMG found. “I am convinced that the I.P.O. market will be largely unavailable or unattractive for at least the rest of 2008 and for the first half of 2009,” says Jim Breyer of venture capital firm Accel, an early investor in Facebook, where Breyer is on the board. “We are advising our portfolio companies to view their cash as particularly precious in these difficult times.”
David Hirsch, a former Googler who has just joined a venture-capital firm as a partner after an eight-month-long job search, has one provable talent: Excellent timing. Hirsch joined Google in 2000, and spent eight years at the company. But a former colleague tells us Hirsch was "useless." Google's touchy-feely management were too confrontation-averse to actually fire him; instead, Hirsch was demoted twice and eventually moved to a recruiting job in HR, where he worked for the last two and a half years of his so-called career at Google, accourding to our source. Unqualified even for a sales job? Sounds like most venture capitalist we know.
Most venture capitalists I know are deeply insecure. Why? Because they're not entrepreneurs. Yes, it's true: The Valley's moneymen have a founder fetish. And the worst of the lot are the former lawyers, who never did anything even remotely resembling building a company, but retain the lawerly suspicion that they're smarter than their companies. I mention this because I've stumbled across August Capital partner David Hornik's intro video from The Lobby, his invite-only Hawaiian vacation masquerading as a conference. In the video, which he posted publicly to his personal blog, Hornik puts on a series of baseball caps — he wears many hats, yageddit? — from his portfolio of startups. A song plays: "You're my superhero, my knight in shining armor." Venture capitalist to the rescue! Hornik's wife and kids also appear. He's a family man! Read More: Who's shameless enough to go to The Lobby this year?, Photos from Sarah Lacy's book party, Secrets of the worst websites -- revealed!, Venture capitalist disrobes in front of titillated SXSW audience
Unlike the NASDAQ and S&P, venture capital returns were positive for the 12-months ended June 30, according to a Monday report from the National Venture Capital Association and Thomson Reuters. Still, venture performance declined from the first quarter of the year, signaling trouble to come. Venture capital funds typically outperform public market indices. Over the last 10 years, venture investments returned 16.6 percent, while the NASDAQ returned 1.9 percent and the S&P 500 returned 1.2 percent. That pattern continued in the year ending June 30, with venture returning 5.1 percent versus -11.1 percent for the NASDAQ and -13.8 percent for the S&P 500. Still, the data showed that the economic crisis is already affecting venture returns, even for the period ended June 30, before the downturn grew severe. The 5.1 percent growth for the year is down from 25.5 percent growth for the 12-month period ended June 30, 2007 and 13.3 percent for the 12 months ended March 31, 2008. The decline is caused by the I.P.O. drought. Initial public offerings provide the greatest returns for venture funds. Yet technology I.P.O.s have been nearly impossible this year — there have been only two, versus 48 in all of 2007. Venture performance will continue to suffer as the prosperous bubble years of 1998 and 1999 fall out of the ten-year comparisons, said Mark Heesen, president of the National Venture Capital Association. Two other markers of venture capital health — the dollar amounts raised and invested — have also shown recent declines. Venture capitalists are closely watching for potential fall-out from the economic crisis. They worry about whether their investors will continue to be able to afford to invest in venture funds, how much start-up valuations will be driven down by the troubled markets and whether their current portfolio companies will be able to survive.