Does This Term Sheet Make My Butt Look Big?

Deal scarity is a big problem

by djrajio (Senior Monkey, 66 Points) on 4/8/10 at 10:09am

Deal scarity is a big problem with VC right now:

During the 2004-2007 boom, too many VC funds got too much money that they now don't know what to do with. There aren't enough good investments these days, pushing valuations even higher. ROI is poor and with the remaining companies on their portfolio, few, if any, have the potential for IPO, so they just burn through cash hoping that the economy will recover quickly so they can cash out. Good luck.

You have to admire these VC guys though. They that did everything textbook right in the late nineties. Went to the best schools, did McK/IBD TMT, etc. Probably add in a quick jaunt at a horribly managed start-up. Then went to business school to land in the top VC funds only to miss the train on the entire "hedge-fund/private equity" craze.

In my opinion, what is happening to VC is going to happen to private equity in the next few years.

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I do agree that VC's are

by westfald (Gorilla, 697 Points) on 4/8/10 at 2:58pm

I do agree that VC's are pussy footing around w/ entrepreneurs to much as of late. But the reality is until there's a new gen of web, mobile, and hard technology; there just isn't the big break out innovation to justify these huge seed rounds.

The funds that are doing well are leaner & have MD's that legitimately live and breathe what's going on in the tech space. I think Brad Feld & Josh Kopelman are two great examples of VC's who get it; they've got their finger on the pulse & can pull the trigger on a relevant investments weeks before some associate gives their MD the heads up about it while he's playing golf. For example, unless Brad knows you or has a direct referral, he'll only take pitch's via Twitter.

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djrajio wrote: In my opinion,

by sylvester (Senior Monkey, 69 Points) on 4/8/10 at 7:12pm

Probably it's already happening. I remember during 05'-07' some of these guys' AUMs growing like mushrooms and filling their portfolios with what is now pure junk. I even know a few funds tried to unload some of these companies in the boom market only to be still stuck with them today. Still I think the US is in a better condition, considering what is happening in some/most of the emerging markets where the relatively few VC's and PE's are closing shop by the day. However, there is a difference that while in the US it's mostly caused by too much money chasing too few good opportunities, in the emerging markets it's: most of the money in the hands of poor management or telecommuting management (no you cannot successfully run a portfolio of companies from 5000 miles and a couple of tourist expeditions a year).

It will be interesting to see how things unfold now that fund-raising has been pretty much dead since 09' , obtaining leverage has been like winning the lotto, secondaries pretty inexistent, smaller stock markets illiquid, private investors putting cash in the stock market and staying away from investments with minimum 3 to 10 year lock-up periods.

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