An interesting presentation from Adeo Ressi, founder of TheFunded:
I’m not sure this is specific to the VC industry – the same thing happens in PE, hedge funds and other managed asset sectors. Money goes to those who don’t need it.
How much of this is relevant to India? I don’t mean the facebook wannabes that did not get funded; the internet is an overhyped model catering to an extremely small population in India. I’m asking about sectors that are promising but have not received any serious (equity) funding because of VC affiliation to the internet, telecom, media and lately, alternative energy sectors. I know of the odd kaatizone that has gotten funding; but in general, what sectors are starved of cash?
And is it a problem of too much money? Businesses, in India at least, seem to need either way too much or way too little. Power plants and energy projects are part of the former and they’ve got their place in the sun. But “way too little” has been common too – starting a company and growing it today requires a lot lesser capital than it ever has, and the micro levels of funding, with similarly micro levels of exits, seem to be non-existent. As an example in the US, take Wallstrip which was funded by Howard Lindzon for $500K, and was sold for $5 million in a year. Yes, this selling ecosystem needs to happen here, but is this kind of deal totally absent or have I just not heard of any?
I think this will be a very interesting space. Perhaps the reduction in available money, and reappearance of “risk” capital will make way for path-breaking VCs who’ll invest in places where you didn’t know there were places. Venture Capital to Adventure Capital, in a way.
- “Something is wrong in Venture Capital” - November 15, 2008
- Booths in Large Conferences - October 2, 2007
- Just 85 lakh internet subscribers? - June 19, 2007
Slide #16,17 take the cake, i.e. seen with a Startup’s eyes. Wondering, if VCs here would agree and why they don’t if they don’t — i.e. how does it hurt their interests ?
Some possibilities to watch out for
* As academic foundations and Calpers & peers take major portfolio losses, availability of VC money goes down (2008-13). Fundraising becomes difficult. Many funds get consolidated. Smaller VC funds, esp. in emerging markets “sell themselves off”.
* Web 2.0 startup bubble bursts (2008-9)
* SaaS and cloud tech startup bubble builds up (2008) and bursts (2009-10)
* US VCs increase presence in emerging markets, esp. India in search of returns. More investments are made, but most do not create VC-type scale and returns.
* Internet 1.0 biggies face their first real crisit post 2001. Yahoo and Ebay get sold. Many other 1.0 firms becomes irrelevant due to new technologies. Only Amazon and Google survive (2009-10).
* Individuals who are in the investment business for passion and not for money continue to build, often developing great individual investment portfolios of startups.
Not sure if there’s anything really new here, due to the way the VC model is structured. The biggest gotcha is that there’s probably too much money (with its attendant issues) in VC today.
Here‘s a response from Fred Wilson of Union Square Ventures that makes those points.
You know the reason?
I saw multiple ads from TiE (and their partners) touting their next big conference to find the next 800 million dollar opportunity in India.
Their has to be some realism, somewhere — even while copying the silicon valley models, people seem to choose the wrong ones.
Seeds are sown at the ground level and not sprayed from an airplane.
So what’s in common amongst all those themes courted by VCs? Easier availability of replacement capital that broadens their exit options that makes them seem highly liquid with low gestation and quicker payback. While a Sequoia can drool over the prospect of palming off its internet investments someday to a Google or Microsoft, a KKR or TPG can’t do that so easily with a REIT fund in its portfolio to a real estate or manufacturing company. Not many industries free up capital as fast as these sectors do. Investors crave for faster liquidity options. Investors desire disproportionate returns for the level of risk they assume.