VC的死亡和重生
2008-11-29 10:41阅读：
Michael Butler is chairman and CEO of investment bank Cascadia
Capital. He is writing a book titled Financing the Future and the
Next Wave of 21st Century Innovation, and is serializing it here at
peHUB. What follows is an excerpt from the fourth
chapter.
A decade ago, every ambitious and analytical business-school
student dreamed of becoming a rock-star venture capitalist like
John Doerr or Jim Clark. And why not? The returns were robust, the
headlines and magazine covers were positive, and the personal
wealth just piled up.
There’s a very different kind of pile up today on Sand Hill Road,
however. And it looks more like a car crash than a personal cash
stash. Very few venture capitalists are crying poverty, but the VC
industry is undergoing a wrenching and major restructuring that
will cause unfamiliar pain and dislocation for a long time to
come.
To put it bluntly, the venture capital model is broken and even the
smartest VC’s aren’t sure how to fix it – o
r if it can be fixed at all.
While they’re looking for elusive answers, the venture business is
being partitioned into two sub-segments – the winners, who
represent 20 percent of the firms, and the also-rans, who account
for the remaining 80 percent.
For the most part, the winners are big, established brand-names
like Kleiner-Perkins, Sequoia and NEA, or geographic and/or
industry specific funds like OVP and Technology Partners. In both
cases, these winners are still generating attractive risk-adjusted
returns on capital. And because of their strong and proven track
records, these blue-chip firms will almost certainly continue to
get the best access to the best deals and best entrepreneurs. This
means, of course, that the best pension funds and endowments will
keep investing in these elite funds, accentuating and perpetuating
the emerging two-tier structure of the venture capital
industry.
By almost any measure, the VC business is shrinking today in the
wake of the unprecedented Internet market collapse of a few years
ago. Between 2000 and 2007, for example, the amount of venture
capital invested dropped from $105 billion a year to $29 billion;
during the same time period, the number of annual deals fell from
nearly 8,000 to just under 4,000. Perhaps more telling is the fact
that the number of venture capital firms in the United States
contracted by 49 percent between 2000 and 2006.
I believe there are five reasons why the contraction will continue
for the foreseeable future in the venture capital industry.
First, the technology and telecommunications sectors, which have
been responsible for so much VC growth over the past decade, are
slowing down. There are still interesting situations in wireless
software, and the SaaS model is intriguing, but for the most part
innovation seems less compelling in IT right now. In addition, many
of the opportunities that currently exist in new media and on the
Internet require very little capital compared to software
development and, thus, may lend themselves more to angel investing
than venture capital.
Second, it’s unclear whether most venture capital firms can
successfully diversify and migrate from information technology and
telecommunications into new segments like clean technology,
alternative energy or healthcare. It’s true that $3 billion of
venture money was invested in clean technology last year, but
generating meaningful returns in these still-emerging businesses
requires specialized expertise, and many of the tech and telecom
focused VC funds don’t seem to have that knowledge base readily
available at this point in time.
Third, there is intensifying competition from European venture
capital firms, which have sophisticated talent and experience in
several of these new and growing sectors, including the clean
technology space. Their experience and expertise, combined with the
favorable exchange rate, puts U.S. VC’s in a bit of a box – and
this probably won’t let up anytime soon. Right now, we’re involved
in a number of deals that have come from solid and successful
European VC’s.
Fourth, an increasing number of entrepreneurs are seriously
questioning whether venture capital mentoring is all it’s been
cracked up to be – particularly in light of the start-up carnage
that was left in the wake of the Internet revolution earlier this
decade. More and more fledgling companies associate a double
negative with the venture capital experience: expensive money and
ineffective counseling.
Fifth, angel investors are squeezing venture capitalists out of a
number of small but potentially lucrative deals. This represents
quite a turn of the wheel, because venture capitalists had the
upper hand during the last cycle and frequently crammed down on the
angels. There is definitely some bad financial blood here – and,
quite simply, this is pay-back time. The angels’ increasing
significance was demonstrated recently when CleverSet – a software
company that recommends online products – relied on them for a good
chunk of financing.
So, the once-vaunted VC model is broken – now what? How does it get
mended? And how long will it take?
I’ll answer the second question first by saying that, given the
long lifecycle of VC funds, it’s going to take some time for the
venture capital community to fully adjust to the new reality that
has befallen it – maybe even a full decade of true
transformation.
And during those 10 years, the VC’s who survive will likely have to
become one of three types of funds:
• Regionally focused funds – Funds that are
sized appropriately and are focused on a geographic region can be
very successful. By bringing local market insight, a network of
local relationships and on-site mentoring, geographically focused
funds can gain access to the highest quality deals and generate
attractive returns. Madrona Venture Group, for example, has done a
good job of sizing its fund to the opportunity at hand. Madrona has
focused on the Pacific Northwest and has generated attractive
returns for its investors.
• Specialized or industry focused funds –
VC’s will have to be nimble over the next few years and go where
the dynamic companies are – the alternative energy, clean
technology and healthcare sectors. These emerging segments are
complex – and combine science and sociology; building a new Web
browser, for instance, is not the same thing as saving the world
from the impact of climate change. Technology Partners is a
wonderful example of a fund that has changed its focus and emerged
as a leader by focusing on life sciences and clean tech.
• Fund Complexes – The funds that don’t
downsize and/or specialize, the ones that remain large, will likely
need to become multi-asset class and global to be able to generate
the required returns on their capital. Funds such as Sequoia,
Summit Partners and Ignition Partners are offering access to some
or all of the following: seed, early-stage VC, late-stage VC,
growth equity capital, PE, mezzanine debt and public equity
capital. And they are making investments not only in the U.S. and
Europe, but also in China, India and Israel.
The VC community will likely end up looking much like the
commercial banking and investment banking industries – some very
large and global players with broad product offerings, and a lot of
smaller focused boutique firms that have specialization as their
competitive differentiations. The large funds will be more than $1
billion, and the small funds will be between $200 million and $250
million. We’ve learned from the commercial banking and investment
banking experience that large and small firms can be very
successful, but firms that fall into the middle – that are neither
large nor small – won’t be able to generate attractive returns on
capital.
The VC world looks extremely dark right now – and we haven’t even
seen the worst fallout from the current financial cycle yet. But
venture capital will somehow find a way to revive and renew
itself.
It always has.
Ever since ADR, the first U.S. venture capital firm, was formed by
Georges Doriot in 1946, innovation has been efficiently energized
and capitalized in this country. The stagflation of the late 1970’s
severely challenged VC’s and the Internet Bubble almost wiped many
of them out. Now the industry is a much diminished version of its
turn-of-the-century self. Yet when I look ahead, I see the top-tier
VC firms – the winning 20 percent – continuing to pick winning
companies with winning ideas. That’s more than comforting and sure
to stimulate the economic growth this country needs to keep pace in
the relentless global marketplace.
