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Summary:

Most tech insiders know that VCs are risk-averse lemmings who chase hot new trends and when times turn bad, collectively groan: OMG! In short, they don’t quite do what they get paid to do — make money by investing in risky ideas during times of distress. […]

Most tech insiders know that VCs are risk-averse lemmings who chase hot new trends and when times turn bad, collectively groan: OMG! In short, they don’t quite do what they get paid to do — make money by investing in risky ideas during times of distress. Proof of this lemming-like behavior is quantified by the results of a survey conducted by the industry’s flagship organization, the National Venture Capital Association. They surveyed 400 venture capitalists to find that:

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  • 92 percent of VCs thinks investments will slow in 2009. (Translation: We are all going to be hiding under our desks.)
  • 19 percent say they are going to invest in more companies.
  • 60 percent are decreasing their seed investments. (Translation: We are not taking any significant risks)
  • Cleantech investing has the potential to be stable or even grow in 2009; Internet investing, not so much. Most are sour on Media and Chip investments as well.
  • Managers of Indian & Chinese funds will be backing off and taking it easy next year.

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(Disclosure — given my recent foray into the land of VCs, I qualify as a baby lemming!)

Photo Courtesy of Petereck via Flickr

  1. It is unfortunate that this myth about lemmings blindly following each other over a cliff persists in society despite the many times it has been shown to be false.

    It however is not false that VCs seem to suffer from severe group-think, not much different from traditional stock market investors.

    Are they any different from the many people who buy things just because the item is popular? It seems that we humans suffer from group-think naturally.

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  2. While the lemming reputation may be well earned, I don’t think your comments about ‘hunkering down’ are fair. Truth is that many GP’s are not sure of the posture of their LP’s, and their ability to fund ’09 commitments. Till they do, it would be foolish to invest at the same pace, when your fund may suddenly be 30% smaller. It is also logical (though unfortunate) that the earliest stage investments would be hardest hit; as this asset class has the least amount of capital predictability.

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  3. Every year is a difficult year for most entrepreneurs :)

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  4. The whole industry is guilty of group think. Regularly.

    So while I agree that VCs are guilty from time to time, I’m not sure that this is the case here.

    Given how much capital has been erased from the economy, its easy to see how in absolute terms there is going to be less of it available for VCs to disperse. Regardless of what happens to VCs relative access to free captial, the pie has shrunk by enough that there is going to be less available to invest.

    And given the way on line advertising is looking for next year I would think twice about putting money into some advert centric business model – clean tech might well look more attractive.

    Let’s wait and see, but I dont think the projections are wrong. And when you’re right its hard to tell the difference between group think and good decision making.

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  5. [...] just posted this about a recent Survey the NVCA just did, it’s kinda [...]

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  6. [...] Cleantech VCs New Year’s Resolution: Be Conservative Written by Josie Garthwaite No Comments Posted December 18th, 2008 at 10:00 am in Startups Millennium Finance Corp. of Dubai plans to launch a $200 million fund for renewable energy investments in partnership with Chicago-based Advanced Equities. The fund, set to be managed from a new office in India, will focus on “late-stage firms with low technology risk and established revenue streams,” Cleantech Group reports. In other words, it will serve as Exhibit A for the National Venture Capital Association’s forecast that VCs will steer clear of seed and early-stage companies in 2009. Translation, courtesy of Om Malik: In a stormy year, venture capitalists will be hiding under their desks. [...]

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  7. [...] This sort of investment may, happily,  be a significant variant from the statistics collected by Om Malik, who translates them by saying that in 2009 VCs will be “hiding under their desks.” (http://gigaom.com/2008/12/17/proof-group-think-a-dominant-vc-trait/). [...]

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  8. [...] Millennium Finance Corp. of Dubai plans to launch a $200 million fund for renewable energy investments in partnership with Chicago-based Advanced Equities. The fund, set to be managed from a new office in India, will focus on “late-stage firms with low technology risk and established revenue streams,” Cleantech Group reports. In other words, it will serve as Exhibit A for the National Venture Capital Association’s forecast that VCs will steer clear of seed and early-stage companies in 2009. Translation, courtesy of Om Malik: In a stormy year, venture capitalists will be hiding under their desks. [...]

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  9. Awesome

    – Scott from http://scottdig.com

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  10. [...] Proof: Group-think a Dominant VC Trait Posted by davemackey 1 day 7 hours ago (http://gigaom.com) [...]

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