Raising Venture Capital Looks Bleak
Bill Warner Friday, December 19, 2008
The National Venture Capital Association in its annual Predictions Survey paints a pretty bleak picture of what venture capital is going to look like in 2009. Some think that it is more optimistic than it should be. After all, they cannot be so negative as to further alarm their limited partners.
But, some venture capitalists are saying that this is going to be worse than the dot.com bust of 2000 and 2001. The amount of money invested will drop considerably. The only exception might be the late stage companies that are close to a viable exit, but the valuations for these companies will be considerably compressed. It may be so bad that we will lose many venture capital firms that will either shut down operations or move to other investment instruments. We are already seeing evidence of this movement.
New Investment Significantly Curtailed
At the root of the problem is the reduction of the pipeline of money that comes to venture capital firms in the form of institutional money from pension funds and foundations. We have seen clear evidence that raising money for new funds will be very difficult and commitments for capital for current funds are already being curtailed.
If you have a company that needs its first round of venture financing, you are going to have a very hard time getting it. Only the very best deals will make it as 96% of those surveyed said that it will be much harder to get an initial investment. That’s sugar coating for “forget it.” If you are an existing company that needs a follow on round, you are going to have almost as difficult a time; so says about 93% of those surveyed.
Clean Tech and BioTech are Hot; Semiconductors and Media Are Not
Clean Tech, biotech and medical devices are the only industries that might see a significant increase in investment in 2009. Semiconductors and media, along with wireless and software, will experience substantial decreases in investment. In addition, international investments will decline as well.
Not that a large amount of venture capital money ever goes towards seed round companies, seed and early stage companies will suffer as venture capital firms use more of their money to shore up their current portfolios.
No End in Sight
We are only seeing the early signs of what is happening to the private equity world. The whole venture capital industry is in turmoil and could undergo significant changes in their investment priorities and opportunity selection. This will have significant implication on angel investors who may have to carry more of the load to bring companies through their early life.
Filed Under: Angel Investment, Financing a Company, Starting a Business
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
