Comments on: The Venture Industry Needs to Slash Its Investments http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/ Trusted Insights and Conversations on the Next Wave of Technology Sun, 22 Nov 2009 18:46:03 +0000 http://wordpress.com/ hourly 1 By: VC Funding Heading Back to Pre-Bubble Levels http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-961314 VC Funding Heading Back to Pre-Bubble Levels Tue, 21 Jul 2009 05:27:42 +0000 http://gigaom.com/?p=39496#comment-961314 [...] and the economic malaise, and may also represent a permanent shrinking of the industry that several experts have called for in the last nine months. Judging by the types of companies still receiving money, [...] [...] and the economic malaise, and may also represent a permanent shrinking of the industry that several experts have called for in the last nine months. Judging by the types of companies still receiving money, [...]

]]> By: The VC Industry Is Too Fat and the Exits Are Too Thin http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-941167 The VC Industry Is Too Fat and the Exits Are Too Thin Wed, 29 Apr 2009 18:11:24 +0000 http://gigaom.com/?p=39496#comment-941167 [...] industry is depressing returns. His conclusion is that the venture industry doesn’t scale. Fred Wang, over at Trinity Ventures, shares this outlook, and he estimates that venture capital firms ought to raise $15 billion a year, rather than $25 [...] [...] industry is depressing returns. His conclusion is that the venture industry doesn’t scale. Fred Wang, over at Trinity Ventures, shares this outlook, and he estimates that venture capital firms ought to raise $15 billion a year, rather than $25 [...]

]]> By: VC Funding Continues Nosedive: May Hit Bottom and Start Digging http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-938375 VC Funding Continues Nosedive: May Hit Bottom and Start Digging Sat, 18 Apr 2009 04:01:27 +0000 http://gigaom.com/?p=39496#comment-938375 [...] been weakening the venture model since so much capital poured in during the bubble years. Some have argued that venture firms should be pouring between $10 billion and $15 billion into startups each year, not the annual average of $26.51 billion invested over the last five [...] [...] been weakening the venture model since so much capital poured in during the bubble years. Some have argued that venture firms should be pouring between $10 billion and $15 billion into startups each year, not the annual average of $26.51 billion invested over the last five [...]

]]> By: VCs Find It Hard to Raise Money, Too http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-937453 VCs Find It Hard to Raise Money, Too Mon, 13 Apr 2009 15:53:31 +0000 http://gigaom.com/?p=39496#comment-937453 [...] next few years — the venture model is ailing. Exactly how is a matter of debate: Some argue there’s too much money in the space, and others argue that the days of huge IPOs are a thing of the past. One way or another, one result [...] [...] next few years — the venture model is ailing. Exactly how is a matter of debate: Some argue there’s too much money in the space, and others argue that the days of huge IPOs are a thing of the past. One way or another, one result [...]

]]> By: Tech Startups Don’t Need the Valley Unless They Need VC http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-931536 Tech Startups Don’t Need the Valley Unless They Need VC Mon, 16 Mar 2009 02:01:41 +0000 http://gigaom.com/?p=39496#comment-931536 [...] in venture funding and a giant business built in three to five years may be on the wane as the venture world faces its own tectonic shifts (see video below). “The model of tech getting used to VCs throwing crazy amounts of money at [...] [...] in venture funding and a giant business built in three to five years may be on the wane as the venture world faces its own tectonic shifts (see video below). “The model of tech getting used to VCs throwing crazy amounts of money at [...]

]]> By: 花蓮民宿 http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-929134 花蓮民宿 Fri, 27 Feb 2009 15:49:04 +0000 http://gigaom.com/?p=39496#comment-929134 How many VC’s have lost their jobs? Not many at all. That’s because unlike the portfolio companies which are told to slim down their workforce these VC funds can live off their 2% management fees like fat cats in up markets and down markets. Its a joke! How many VC’s have lost their jobs? Not many at all. That’s because unlike the portfolio companies which are told to slim down their workforce these VC funds can live off their 2% management fees like fat cats in up markets and down markets. Its a joke!

]]> By: 花蓮縣長 http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-928333 花蓮縣長 Sat, 21 Feb 2009 14:10:25 +0000 http://gigaom.com/?p=39496#comment-928333 Any asset class that under performs over a long period of time will see diminished investment. So whether venture industry slashes investment or not is immaterial; the investors will make the decision for it. Any asset class that under performs over a long period of time will see diminished investment. So whether venture industry slashes investment or not is immaterial; the investors will make the decision for it.

]]> By: 楊文值 http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927732 楊文值 Wed, 18 Feb 2009 11:13:00 +0000 http://gigaom.com/?p=39496#comment-927732 They need to stop investing in things that are dumb. Things that have no income potential. Things that can’t even stay stable for more than a week at a time. They need to stop investing in things that are dumb. Things that have no income potential. Things that can’t even stay stable for more than a week at a time.

]]> By: Frank T http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927391 Frank T Sun, 15 Feb 2009 22:51:06 +0000 http://gigaom.com/?p=39496#comment-927391 @Rizzo and McClure Well said! How many VC's have lost their jobs? Not many at all. That's because unlike the portfolio companies which are told to slim down their workforce these VC funds can live off their 2% management fees like fat cats in up markets and down markets. Its a joke! There is so much lip service from this industry it gets old. @Rizzo and McClure

Well said!

How many VC’s have lost their jobs? Not many at all. That’s because unlike the portfolio companies which are told to slim down their workforce these VC funds can live off their 2% management fees like fat cats in up markets and down markets. Its a joke!
There is so much lip service from this industry it gets old.

]]> By: Paul http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927296 Paul Sun, 15 Feb 2009 03:02:46 +0000 http://gigaom.com/?p=39496#comment-927296 I find it laughable every time a VC says that his competitors should raise less, invest less, or disappear, but their fund is (a) doing fine and (b) doesn't need to reduce its capital base or return capital to LPs. I would find Fred's thesis a lot more credible if he put his money where his mouth is. I find it laughable every time a VC says that his competitors should raise less, invest less, or disappear, but their fund is (a) doing fine and (b) doesn’t need to reduce its capital base or return capital to LPs.

I would find Fred’s thesis a lot more credible if he put his money where his mouth is.

]]> By: PerfectMoney http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927280 PerfectMoney Sun, 15 Feb 2009 02:03:14 +0000 http://gigaom.com/?p=39496#comment-927280 when economy hit the ground of many INVESTOR expectations,the bright side of it should be in the hand of many INVENTORS.they think harder,they put the energy to perform better presentations and they turn to more originality to take the hole of gap differentiations that will make benefit to the end user,I think It is oke when investment is slowing down,this what make more energy for the new idea to reveal,new technology to develop and new service to be given when economy hit the ground of many INVESTOR expectations,the bright side of it should be in the hand of many INVENTORS.they think harder,they put the energy to perform better presentations and they turn to more originality to take the hole of gap differentiations that will make benefit to the end user,I think It is oke when investment is slowing down,this what make more energy for the new idea to reveal,new technology to develop and new service to be given

]]> By: dave mcclure http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927238 dave mcclure Sat, 14 Feb 2009 16:32:43 +0000 http://gigaom.com/?p=39496#comment-927238 Frank Rizzo is spot on. it's possible the industry could handle all the capital (or not), but only if investment outcome expectations are much smaller. Alan Patricof (who now runs $75m GreyCroft but used to run a $30b fund) also noted in the NYT earlier this week that venture returns are <a href="http://500hats.typepad.com" rel="nofollow">out of touch with reality</a> and that most liquidity is M&A exits in the $25m-$100m range. if that's correct then the total for VC funding going into most companies should likely be under $5-10m, and possibly even under $2-3m. this would argue for most funds being dramatically smaller, or alternatively that their # of deals is much higher / avg size is much smaller. currently very few funds look like this. Frank Rizzo is spot on. it’s possible the industry could handle all the capital (or not), but only if investment outcome expectations are much smaller. Alan Patricof (who now runs $75m GreyCroft but used to run a $30b fund) also noted in the NYT earlier this week that venture returns are out of touch with reality and that most liquidity is M&A exits in the $25m-$100m range. if that’s correct then the total for VC funding going into most companies should likely be under $5-10m, and possibly even under $2-3m. this would argue for most funds being dramatically smaller, or alternatively that their # of deals is much higher / avg size is much smaller. currently very few funds look like this.

]]> By: shootyo1 http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927236 shootyo1 Sat, 14 Feb 2009 16:12:38 +0000 http://gigaom.com/?p=39496#comment-927236 Frank is correct. Investing in a couple of people in a garage with no capital needs are dead right now. The end of cheap credit and the whole reset of what "leverage" means make big success from small investment far less likely. Investments in things like "Green" or "Energy" or "Clean Tech" or any of the other imaginary new technologies to replace software & silicon require huge capital investments, deals with existing energy and supply companies. The technologies are based on 150 year old science and physics that is very well understood and very mature. It is a capital game not a knowledge game there. The new world will be with pooled investments with 6-7% returns over years with a few IPOs and the like at the end, maybe. Each investor in the pool will get a piece. Also know as "banks." Frank is correct. Investing in a couple of people in a garage with no capital needs are dead right now. The end of cheap credit and the whole reset of what “leverage” means make big success from small investment far less likely.

Investments in things like “Green” or “Energy” or “Clean Tech” or any of the other imaginary new technologies to replace software & silicon require huge capital investments, deals with existing energy and supply companies. The technologies are based on 150 year old science and physics that is very well understood and very mature. It is a capital game not a knowledge game there.

The new world will be with pooled investments with 6-7% returns over years with a few IPOs and the like at the end, maybe. Each investor in the pool will get a piece. Also know as “banks.”

]]> By: Eric http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927223 Eric Sat, 14 Feb 2009 10:03:42 +0000 http://gigaom.com/?p=39496#comment-927223 Seriously, maybe they just need to take some real risks instead of acting like sheep. Funding a bunch of copycats because everyone else is doing the same thing is not taking a risk. It's just HERDING. Seriously, maybe they just need to take some real risks instead of acting like sheep. Funding a bunch of copycats because everyone else is doing the same thing is not taking a risk. It’s just HERDING.

]]> By: Frank Rizzo http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927210 Frank Rizzo Sat, 14 Feb 2009 06:49:32 +0000 http://gigaom.com/?p=39496#comment-927210 It's not so much the amount invested, it's the types of investments and the expected returns. VCs need to do an expectations reset and also re-evaluate their model. The model of swinging for the fences with every deal fully knowing the majority will fail but the home runs will more than make up for it doesn't work so well when the home runs are few and far between due to the non-existent IPO market. Time to start collecting singles and doubles and hitting for average. There are lots of well-run businesses out there that could use additional capital and produce a return in excess of VCs' cost of capital. It’s not so much the amount invested, it’s the types of investments and the expected returns. VCs need to do an expectations reset and also re-evaluate their model. The model of swinging for the fences with every deal fully knowing the majority will fail but the home runs will more than make up for it doesn’t work so well when the home runs are few and far between due to the non-existent IPO market. Time to start collecting singles and doubles and hitting for average. There are lots of well-run businesses out there that could use additional capital and produce a return in excess of VCs’ cost of capital.

]]> By: Rahul Sachdev http://gigaom.com/2009/02/13/the-venture-industry-needs-to-lose-up-to-13b/#comment-927206 Rahul Sachdev Sat, 14 Feb 2009 06:08:14 +0000 http://gigaom.com/?p=39496#comment-927206 The Forbes magazine did an interesting article on this topic recently (http://www.forbes.com/forbes/2009/0112/066.html). The bottom line is that the returns on VC investments over the last few years have simply not matched up to the higher risks involved. Any asset class that under performs over a long period of time will see diminished investment. So whether venture industry slashes investment or not is immaterial; the investors will make the decision for it. The Forbes magazine did an interesting article on this topic recently (http://www.forbes.com/forbes/2009/0112/066.html).

The bottom line is that the returns on VC investments over the last few years have simply not matched up to the higher risks involved. Any asset class that under performs over a long period of time will see diminished investment. So whether venture industry slashes investment or not is immaterial; the investors will make the decision for it.

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