From an article in the Boston Globe today covering a panel speaking last week on venture capital:
"Given what's happening in the macro economy, most venture guys took the opportunity to hunker down, look at the companies in their portfolios, and prepare for what could be a difficult 2009," said Ajay Agarwal, managing director at Bain Capital Ventures in Boston.
And the reasons...
Several factors are causing hesitation, the panelists said. One is a frozen market for initial public offerings of venture-backed companies - there were only a half-dozen nationally last year, none of them in New England - leaving corporate buyers of start-ups in a stronger bargaining position.
A second factor has stemmed from the first. Venture firms have had to spend more time and money tending to mature companies in their portfolios that can't go public or be sold profitably. Too often, that has come at the expense of funding for promising early-stage start-ups.
Finally, many would-be entrepreneurs have gotten cold feet about taking a gamble, and trying to raise money, in a time of uncertainty.
Bob Higgins, founding partner at Highland Capital in Lexington, warned of what he called a "divorce syndrome" that's discouraging executives from leaving secure corporate jobs - those few that are still secure - to start companies in the current environment.
"This is not the time to say, 'Honey, I'm making $300,000 a year but I'm going off to start a company,' " Higgins said.
Of course that is for the people still making $300,000 per year. As the article points out, the upside to this terrible economy is that there is a lot of talent looking for work and the start-up companies that do manage to attract capital have gone through a rigorous enough vetting that they may be seen as a good place to be (therefore attracting that talent).
Also: The NYTimes has some more statistics on venture capital returns in 2008. They are down, but not as badly as the stock markets indices. With fewer exit strategies, it is harder to realize gains, the article points out. I, on the other hand, point out that investment exits in this market don't always mean gains. It can also mean recognizing losses and simply trying to recoup some of your investment.
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