Fred Destin

In these testing times investors hate anything that may some day resemble an embarrassingly bad deal (think Reef in the last downturn).  After all this should be a blessed vintage year where great buying opportunities arise, where worthy companies stumble and get picked up for sensible valuations by savvy investors who can recognize greatness even when it's cheap.  It is also a time when "talent is cheap" (as if it ever was…) and smart folks have been laid off and are stealthily plotting the demise of their former employer, thereby offering highly capital efficient investment vehicles to investors who like to think bog.

Which is why the talk of the town is, yet again, the barbell.  A barbell in finance refers to the recreation of a specific maturity in fixed income bonds, said maturity being achieved by mixing short term and long term instruments on the interest rate curve (it's a way to take a view on the shape of the curve, not the rate).  

In VC land, barbell means investing in a mix of:

• on the short end, the really disruptive, low capital intensity, high upside, volatility-laden deal
• on the long end, doing the safe, fast growing acceleration play

There is a superficially compelling logic to this especially if markets are inefficient and the late-stage plays are not priced right.  It's clearly a view of the mind and a slightly generic thought but you are likely to find yourself put into one of those buckets when you go see a VC these days … or, more often than not, in the middle bucket.

Which means you are going to have a really tough time in the current market if you are:

• a semiconductor play with some design wins and a nice big burn
• a potentially promising growth business with an unhealthy consumption of cash
• a risky business with no proof points and a tendency to treat your cash balance like the famous jug of the Danaides

So investors want jam today and not jam tomorrow, or a new kid of jam you are currently designing.

By the way, I am fully aware of the extreme conceptual limitations of thinking like this.  Is it a market dysfunction ?  Clearly.  Is this however how most partnerships will look at deals in 2009 ? You bet.  Be prepared.

<— Are Barbell investors better at heavy lifting ? Or just scary ?