Wednesday, July 2, 2008

The "VC Crisis"

I really know jack-diddly about venture capital, but a post at peHub today resonates with other things I've read and what Christof has mentioned to me in the past.
I offer five forces that underly the observable change in modern venture capital:
  • The technology industry has matured to the extent that startups are viewed as outsourced R&D by big companies.
  • The consolidation of technology verticals via either winner-take-all competition or multi-billion dollar acquisitions has decreased the number of would-be customers and acquirers for focused technology offerings.
  • The over-availability of growth capital promotes competition among startups for scarce resources such as technical employees and early-adopter customers and raises development costs accordingly.
  • Attractive investments may be increasingly found through creative deal sourcing and structuring rather than sexy technologies, big markets or “hot” entrepreneurs. Similarly for successful exits.
  • Successful firms have formalized their succession planning to preserve their virtuous cycle, making specialization an increasingly attractive strategy for first time funds.
These forces, in combination with the fact that the IPO window is now officially closed, makes me wonder aloud again whether there isn't a place for a private equity style firm to buyout the VC stakes in the more developed of their companies. I don't mean late-stage mez financing or anything, I mean a buyer with a long time horizon who is willing to actually own these investments as operating businesses.

No comments: