-
Website
http://avc.com/ -
Original page
http://www.avc.com/a_vc/2009/04/a-deeper-dive-into-the-first-quarter-vc-investment-numbers.html -
Subscribe
All Comments -
Community
-
-
Top Commenters
-
Popular Threads
All Comments
Here is what I think happened - Silicon Valley investors always dreamed of being like New York/Wall Street, able to arrange massive amounts of capital. Then one day their dream came true and it turned out to be a nightmare! In other words a lot of Valley VC (not all by any means, many great exceptions) had turned into "momentum capital", using capital to hop onto trends and amplify them. That is the total antithesis of the patient job of building companies that is real venture capital.
Outside the Valley, VC had to use smaller amounts of capital. That looks like it has become a blessing.
Your look was equally interesting but not exactly related to mine
So I didn't link to it in the post, but it is a related link at the bottom
I love that you took the contrarian approach, which often pays dividends
(Fred, what do I get for using bit.ly?)
You know I am not an investor in bit.ly, right?
Many parts of the system gorged on fees, with no returns for the pension funds... I've said it before, when all the smoke clears, old people will be the bagholders, they always are in these meltdowns.
And yes, I do think many "name funds" are pulling back and the gap is being filled by newer names
But I'm not seeing or hearing a lot about cramdowns
Or is there some other meaning in the VC world?
Any thinking that can account for this regional shift of interest? Has talent accumulating in the NYC area which are leading to more opportunities to surface? Or is it somewhat of a numbers game with the relative population being much larger?
If - say - the Boston area tech emphasizes on Bio/Medical, Healthcare, and Education [as i've heard summarized elsewhere], if you had to characterize the Metro NY area, what are your top-level impressions?
As you move up the stack, certainly in IT and I suspect in other areas as well, technology differentiation matters less and data and network effects matter more
That plays to the strengths of new locations that are not deep tech centers
better, i think it will be incredibly healthy for the entire entrepreneurship ecosystem, which has been overripe and bloated beyond recognition for decade, an opium den with too many funds and partners investing too much capital with too little discipline and focus and commitment, all the while collecting (way) too much management fees with too little success criteria (none).
but i would quibble with your read on the data
looks to me like all three areas are down roughly 50% in fundraising and in activity. northern california maybe a little more pronounced, as they went from $8-$11BN down to $5BN. new england down fron$4bn to $2bn, and new york down from $2bn to $1bn. if the decline in new york seems less dramatic, thats because it started much sooner -- back in 2006, when valley and new england fundraising was taking off to new heights of bubble-dom
and of course luminaries like marc andreesen may be able to cobble together a new fund. but as has been widely reported, many groups are failing to do so, and many brand name firms are radically scaling back efforts. of course, the more things change the more they stay the same -- many or most of the brand name funds scaling back are offering a conscession to LPS... by lowering their carried interest (typically from 25% down to 20%). not only is that a joke -- guess the fund managers dont expect to produce any venture returns -- its an insult to the intelligence of the LP, I think.
so much watre has flowed under the bridge is easy to be distracted but i think this has nothing to do with the current economic woes. rather its the hot air finally being let out of the last bubble, circa 2000. for a decade now funds and managers have been raising funds based on dotcom bubble performance of prior funds. now, finally, with LPs in humungous pain, and with the data clear -- VC funds on the whole have sucked wind for a decade, risk-adjusted-return-wise -- the firms raising new funds have to actually explain themselves.
maybe, anyway
Nowhere else is even close
Silicon valley is still the biggest VC market by a significant margin
Without messing around with proprietary databases like ventureexpert, ventureone, etc., I looked at crunchbase.com to get a feel for the number of dislosed financings in Q4 2008 and Q1 2009.
An inexact method, I counted the number of pages listing financings (i.e. http://www.crunchbase.com/funding-rounds?page=1) for Oct. to Dec. 08 and also for Jan. to Mar. 09.
it turns out there were 15 pages for Q1 2009 but only 12 for Q2 2008. That's 25% more pages in Q1.
Of course this represents only a sample of all financings AND eyeballing it looks like deals in Q1 had much larger syndicates than in Q4. So I figured that maybe there was not such a huge drop off from quarter to quarter. And perhaps Crunchbase is biased away from cleantech, etc. so that lessened the blow. Either way, even with Fred's insight, I was surprised to see it drop off so much compared to the [very] rough estimate I took from Crunchbase.
If you look at capital raised and deployed before the 2000 bubble you will see that this industry (its really a craft) has a lot further down to go in terms of capital. 2004 is not a relevant period.
It is the single most important metric in our business
And I am happy to say we are doing quite well in that regard
But capital has to be invested to be returned
So capital invested is also an important metric
And it is certainly important to entrepreneurs
I just started a blog for foundation and endowment investment officers that's in very early stage/experimental mode. I wrote on TechCrunch and VentureBeat's take on the decline in VC investments in Q1, focused on their respective analysis of the decline in Cleantech investments. It helped to hear how you explained the drop. Here's my post http://is.gd/tnpF
I left a comment on it
He said that he did a study going back to the 1970s of every year in the venture business and the startups that got funded each year.
That study showed that each "vintage year" produced about the same number of billion dollar exits and it was not correlated to anything.
So that means that each year is a lottery ticket and you gotta be in it to win it.
Pulling back is not a good idea in this business
I have to disagree with your conclusion in this article. While I agree that NY+New England's fall in venture investments has been lower than that of Silicon valley's, I think the difference is not as dramatic when you look at it in terms of % terms - may be 33% vs 50%. Since we are comparing two regions with significant difference in absolute dollars and number of deals to begin with, it would be more appropriate to look at it in terms of percentages. If you put a floor on the number of deals/$$ in both regions that get done no matter what the economic conditions are, the difference will be even smaller.
The better way to assess the market would be to compare deal terms (not just valuation, all of the key terms). I am quite confident that Entrepreneurs would like to have closed a term sheet last year vs. today if they can.
On the other hand, most ideas and opportunities are not timed to economic conditions - they (for the most part) only make it difficult or easier for the entrepreneur to reach his end goal - thank you for continuing to invest in them.
Not really more money, but certainly more deals
Funny, or not so really, that when oil prices goes down, so with it goes clean tech investments. Been this way for over 30 years.
http://www.amee.com/
you don't have to invest billions to create important change
in fact, I would argue most important change is created by investing very little
Would love to connect your AMEE team to the energy products team we've got at my company: http://blackanddecker.com/Energy/products.aspx
You need both
I just think from a rate of return perspective, software is much better risk/reward
Do you want an intro to amee?
Understand the risk/reward, just questioning who invests in the higher capital projects as it is easy for companies and investors to back off innovation that take 5+ years to pay back. Is the answer the government via universities into start ups? [loaded question]
Take a look at this article - http://blogs.wsj.com/venturecapital/2009/04/16/... - "Equally misguided are signals from Treasury Secretary Timothy Geithner that venture capital firms may be forced to submit to onerous Securities and Exchange Commission reporting requirements to ensure that we aren’t “a threat to financial stability.”
But NYC is a pretty downtrodden place right now
I just think it’s a different market in terms of what we invest in here
New York VCs are more frugal and will likely fare better through this downturn.
If you strip out Clean Tech, Biotech and hardware investments, Research Capital Corp indicates that hardly any drop in investment activity at all. More here: http://www.shaiberger.com/?p=216.
- Shai