This article recently appeared on BusinessWeek. It’s not a new discussion, but one that is so true. It is actually more of a PR piece of First Round Capital and Josh Kopelman, but whatever. It’s true. The venture firms with super larger funds have gotten caught in this recession. Actually, even before the recession, the venture model didn’t make much sense. I think Kopelman is absolutely correct when he says,
Venture firms raise money from institutional investors and wealthy individuals in discrete funds. To give a fund’s investors a 20% annual return, the firm needs to triple the money raised within a six-year period, Kopelman said. For a $400 million fund, that means returning $1.2 billion to investors. Since VCs typically don’t want the risk of holding more than 20% of the companies they invest in, they have to help build a few companies with a total of $6 billion in market value. But in the past few years only a handful of companies have sold or gone public for more than $1 billion. ‘You sit there and say, ‘Holy crap, that model doesn’t work.’
This is why I am excited with smaller venture capital funds like those raised by Founders Fund, Union Square Ventures, or Spark Capital. They may not genearte the multi-hundred million dollar exits, but several exits at tens or $100-$200 millions could generate a healthy return for the investors.
By: Jonathan Lee
For those of you who didn’t pay attention in history class, D-Day was June 6th, 1944. Sprint announced today that Palm Pre will be available on June 6th. Palm Pre will be available nationwide in Sprint stores, as well as at Best Buy, Radio Shack, and some Wal-Mart stores. The phone will sell for $199.99 after rebate and service agreement.
In some ways, the future of Sprint hinges on the success of the Pre launch. Sprint has been struggling in the recent years and needs to change its image… fast. I remember reading somewhere that Palm, which has also been struggling, was taking its time with the launch of Pre. Palm cannot afford to launched its phone prematurely like RIM did with its Blackberry. I need a new phone so I’ll have to go check out the Pre.
By: Jonathan Lee
Presentation from NVCA at the 2009 Annual Meeting in Boston:
The above slide show is from NVCA’s website. The NVCA had its 2009 Annual Meeting in the great city of Boston. I went to the NEVN/NVCA Dessert Reception and talked with a few VCs about what they are seeing and hearing these days… because they probably aren’t doing/investing much these days. Just kidding. By the way, great desserts!
I did not attend any of the sessions during the day, but NVCA president’s comment below gives me an idea of what the mood might at the meeting have been like:
“This capital markets issue is not just a venture capital industry problem; it is a U.S. economic concern. If America wants to maintain its economic leadership and continue to grow and innovate, we must re-invigorate the public markets and strive towards healthier IPO levels similar to that which our country enjoyed in the 1980s and 1990s. Without this activity, we can expect job growth to disappear over time.”
The NVCA also released an article that is a bit more detailed than the presentation, but I won’t talk to much about here. You can download it from here if you want to read the whole thing.
I’ve heard many say that the success of the venture capital industry depends heavily on the IPO market. I agree with that for the most part. It makes sense. Given the uncertainty of the current public market and VC industry’s less-than-impressive performance over the past several years, some investors are wondering whether they should invest in venture at all. I disagree with that logic. You can’t time the market and you shouldn’t do venture to fill a bucket in your investment portfolio. You should do it only if it’s appropriate for your investment objectives and can handle long periods of iliquidity. That said, I think the economy will eventually work itself out, and when it does, NVCA’s four-pillars may help expedite the recovery of IPO market for venture-backed companies.
By: Jonathan Lee