Venture capital hangs itself with overhang

You have heard this story a 1,000 times, but going to basics on headline numbers is always sobering (courtesy of Mr Deninger, Jefferies).  Facts, not opininons (i hope I got his numbers right).

  • 1996: $4bn deployed, 110-ish “quality exits” (meaning 100+ in value)
  • 2006: $11bn deployed, 67 quality exits

In digital media alone: $6bn put to work and over 1,000 companies funded (according to Kara Nortman, a VP M&A with IAC).

That’s insane.  We will probably not get a market correction that is anywhere close to the last one, but the venture industry is undoubtedly recreating problems for itself here.

But not us.  We are not lemmings.  Proof: my partner Ahmet Ozalp, when asked where he plans to invest our money, points out that telecom infastructure (amongst other themes he mentions) is due a comeback.  Mark Stevens (a partner from Fenwick & West) almost falls off his chair and says “You heard it here first, folks, telco is back !”.

Another issue raised by Bruce:

The problem is compounded by 6 years of decline in the number of quoted companies.  This means fewer buyers, a depleted acquiror pool and increased negotiation leverage for the buyers.

Bruce’s advice: bring more of your companies public… We’ll work on that !

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