Growth5 Blog

Friday, July 31, 2009

The VC Industry is NOT Broken

According to a survey conducted by executive search firm Polachi Inc., more than half of venture capitalists believe that the VC space is broken. Nearly 60% of VCs said they are less confident in the VC industry today than they were six months ago.

Jason Mendelson of Foundry Group explained here why he feels the VC industry is not broken. He makes some great points. The highlights:
1. It's never been cheaper to start a business.

2. Lots of entrepreneurs out there. College graduates are creating their own opportunities.

3. More "been there, done that" entrepreneurs to fund.

4. VC space is not dependent upon credit market or other systematic risk areas of finance.

5. Broadband, mobile connectivity and advertiser attention is coming together.

6. This asset class has a 10-12 year life span, worrying over short term issues is a waste of time, especially since the industry has produced the best returns on companies where the investment was made during a downturn.

7. Sure, exit markets aren't great right now, but according to many bankers, there appears to be wave of M&A on the horizon.
The "glass is half empty" folks in the VC space are likely those that are later-stage and are sitting on billions of dollars they can't allocate. Yes, for them, the VC space is difficult right now, especially because of #1 above. You don't need $50 million - $100 million to start a potential blockbuster business these days.

To Jason's point in #7 above, I too have heard the enthusiasm from various bankers about their current M&A business and its growth.

Our VC firm, Growth5 Venture Capital Marketing, is in the "glass half full" group. It is a great time to partner with entrepreneurs.

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