Here's a brief story in the Financial Times about the US Venture Capital industry, affectionately [sic] known as "Sand Hill Road" to those of us who deal with it.
The story quotes Michael Moritz of Sequoia Capital to the effect that, because there are so few "exits" now for venture-funded companies, the VC industry as a whole will suffer a severe shakeout.
(A venture-funded startup has to pay back its backers with some kind of a "liquidity event," in which the investors' stock is swapped for something that has a public market value. Either you go public in an IPO, or you sell yourself to an already-public company.)
If you were paying attention back around 2001 and 2002, you remember the exact same thing happened then, as the Internet bubble busted. A lot of VC firms disappeared then, but the big names held on, even closing new funds, and then more or less sitting on their money.
The story quotes Michael Moritz of Sequoia Capital to the effect that, because there are so few "exits" now for venture-funded companies, the VC industry as a whole will suffer a severe shakeout.
(A venture-funded startup has to pay back its backers with some kind of a "liquidity event," in which the investors' stock is swapped for something that has a public market value. Either you go public in an IPO, or you sell yourself to an already-public company.)
If you were paying attention back around 2001 and 2002, you remember the exact same thing happened then, as the Internet bubble busted. A lot of VC firms disappeared then, but the big names held on, even closing new funds, and then more or less sitting on their money.
In my view, Sand Hill Road never really came back. The big themes of
the last several years have been green-tech (of course), and a major
mania, now largely played out, for small and mobile electronics for the
personal-communications markets.
But the biggest venture-backed IPO of the post-Internet period was Google, a company that was founded in the mid-Nineties. And, reminiscent of incest, one of the subsidiary recent themes has been Web 2.0 companies, in which the basic goal is to build up a set of eyeballs and then sell them to... Google.
But looking ahead, the prototypical large VC-backed startup right now is Tesla Motors, the electric-roadster company based in Menlo Park, founded by Paypal hero Elon Musk, and funded by a who's-who of Silicon Valley royalty.
Tesla is having trouble closing their next funding round, and have been cutting costs. And they tried to sneak a $400 million "investment" from the Federal government in the recently-scuttled automaker bailout legislation.
When venture-backed companies start trying to bring in the taxpayers as junior investors, you know something is rotten on Sand Hill Road.
It's true that a lot of lesser VC firms will find that they can't close on new funds, because the investment dollars won't be available from pension funds, university endowments, and other tax-free entities that are the bulk of the industry's limited partners.
This is basically a healthy process, as the weaker hands get weeded out. And it will take several years to play out, because a typical VC fund runs for five to seven years.
But it leaves you asking where the great new technical innovations, and the explosively lucrative new public companies, will come from in the future.
Go back to Tesla. The government was interested in funding them because electric cars are a major priority for policymakers. That's part of the answer to my question. As long as the government is willing to step in and decide which technical projects are worth funding, there will be a diminished role for classic venture capital, and its business model of funding ten companies in hope that one of them will strike it rich.
We could be looking at the beginning of the end of a storied American industry.
But the biggest venture-backed IPO of the post-Internet period was Google, a company that was founded in the mid-Nineties. And, reminiscent of incest, one of the subsidiary recent themes has been Web 2.0 companies, in which the basic goal is to build up a set of eyeballs and then sell them to... Google.
But looking ahead, the prototypical large VC-backed startup right now is Tesla Motors, the electric-roadster company based in Menlo Park, founded by Paypal hero Elon Musk, and funded by a who's-who of Silicon Valley royalty.
Tesla is having trouble closing their next funding round, and have been cutting costs. And they tried to sneak a $400 million "investment" from the Federal government in the recently-scuttled automaker bailout legislation.
When venture-backed companies start trying to bring in the taxpayers as junior investors, you know something is rotten on Sand Hill Road.
It's true that a lot of lesser VC firms will find that they can't close on new funds, because the investment dollars won't be available from pension funds, university endowments, and other tax-free entities that are the bulk of the industry's limited partners.
This is basically a healthy process, as the weaker hands get weeded out. And it will take several years to play out, because a typical VC fund runs for five to seven years.
But it leaves you asking where the great new technical innovations, and the explosively lucrative new public companies, will come from in the future.
Go back to Tesla. The government was interested in funding them because electric cars are a major priority for policymakers. That's part of the answer to my question. As long as the government is willing to step in and decide which technical projects are worth funding, there will be a diminished role for classic venture capital, and its business model of funding ten companies in hope that one of them will strike it rich.
We could be looking at the beginning of the end of a storied American industry.
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