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[qi:006] The current woes of the hedge fund and private equity markets, compounded by a credit crunch is said to benefit the venture capital industry, according to Keith Benjamin, a general partner at Levinsohn Venture Partners, who argues that institutional investors (endowments and pension funds, for […]

[qi:006] The current woes of the hedge fund and private equity markets, compounded by a credit crunch is said to benefit the venture capital industry, according to Keith Benjamin, a general partner at Levinsohn Venture Partners, who argues that institutional investors (endowments and pension funds, for instance) will try and reallocate their investments to other asset classes.

The recent up tick (and in some cases absolute insanity) in the initial public offerings is only to act as a confidence booster, Benjamin argues, both in today’s The New York Times and in a guest column over on Venture Beat.

While the long term thrust of his arguments is absolutely right, it is impossible to gloss over the near term implications. What do you think those implications are, and which are the companies at most risk? Speak away!

  1. Sure does feel like bad times to me…and I’m not in the banking industry.

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  2. Om

    The word here in new York is “be very scared.” Early in the week, I guessed three to one we’d pull through. But even a one in four chance of an imminent crash is very, very high. The money side – LBO’s, private equity, ultimately the payoffs for VC’s – is pulling back hard. Everything there is based upon massive, risky borrowing that explodes if interest rates go up or a problem hits.

    Informing that opinion is a blog from Alan Meckler, who's been through several ups and downs: "Lots Of Deals
    

    Internet deals abound. … we have been offered an amazing number of Internet properties. … I think the mortgage mess might be part of the equation. My reasoning is that many entrepreneurs might be panicking. Perhaps they reason that all types of funding might be curtailed due to the credit crunch enveloping America? So perhaps this is the time to sell rather than hunt around for more funding for expansion?
    … It reminds somewhat of late 1999 to early 2000 when acquisition options and VC deals were aplenty.”

    Buying when everyone else is panicking has historically been a workable strategy, but it’s also possible the panic has lots more room to escalate.

    Another way to look at the problem is that crisis in the money sphere produces crisis in the real economy. That was explored in the nineteenth century, as the spread of crisis from the realm or circulation to the realm of production. The Fed and government have only limited tools in this time of great deficit.

    I’ve no certainty about how this will play out. In 1998, I predicted we were in a bubble that had to burst. For two years after that, things kept going up and anyone who followed my advice wouldn’t have made money. Anyone honest has learned to be hmuble about any of these predictions.
    db

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  3. Mobile Shikari 2.5 Saturday, August 25, 2007

    Easy money has had its effects and not just in the stock-markets.

    No doubt investors and entrepreneurs in technology startups are as guilty (or opportunistic) as in any other sector of having ‘made hay while the sun shone’. The shakeout will provide a good dose of back to basics financial discipline. Such discipline has never been a disincentive to quality management teams – which is what sound businesses are all about.

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  4. Easy money is risky money. These LBOs, high risk loans, and explosive growth are all the result of high risk decisions. Sometimes it’s good, but the law of averages catches up sooner or later. Looks like it caught up.

    I don’t think things are bad, I just think the market is self correcting. I agree that more money will be directed to VC funds, but this is a riskey market as well. VC markets will boom for a few years, it will crash, and then we’ll start the process all over again with debt markets.

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  5. [...] “time-period-that-must-not-be-named.” However, not everyone agrees. DB in the comments of an OM Malik post says that the word in New York “to be very scared.” Mark Evans doesn’t get it [...]

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  6. [...] I am writing today in response to an Open Thread on GigaOM. [...]

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  7. The credit crisis will have an important impact on entrepreneurs, but must also be considered in the context of a weakening dollar and the risk of an economic downturn. The likely affects are three-fold:

    1. “Exits” through acquisition by an established industry player or private equity buyout will be less likely

    2. Consumer dollars may shift away from startup businesses whose products look a lot more like “luxuries” than day-to-day essentials

    3. Top qualified job candidates and new entrepreneurs may delay their entry into the market until conditions improve

    Read More:
    http://www.thestrategyfox.com/2007/08/putting_it_together/

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  8. [...] January 24, 2008 at 12:00 AM PT Comments (0) The credit crunch may not have fazed tech startups much, but the recent turmoil in the global financial markets is worrying. Whether it’s eBay paying [...]

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  9. With websites like fakepaycheckstubs com out there, No wonder the financial markets is in a credit crunch and foreclosures are hitting an all time high!

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