What's a VC to Do?
Forbes.com
What's a VC to Do?
Shelley Pannill, Forbes ASAP, 09.10.01
Someone's always looking for a bargain.
As thousands of new economy startups crashed and burned this past year,
speculation mounted that the venture capitalists they once enriched
were now cautiously sitting on pots of gold and playing golf. But the
VCs we talked to say it's only the limited partners, the investors
behind the venture funds, who get to perfect their putts.
So what are these high-powered moneylenders up to now?
Damage control. VCs, like the rest of us, have lost a lot of money
lately. Some 25% are expected to go out of business over the next
several years. "Sometimes your widget doesn't widge," says Alan Salzman,
founding partner at VantagePoint Venture Partners. He should know. His
firm recently faced the grim task of writing severance checks after one
bankrupt portfolio company's management team had squandered its money.
Then there's the job of smoothing things out at companies that survived
but were merged, downsized, or acquired. Says Philip Gianos of InterWest
Partners: "I'm acting like a marriage counselor, which is a full-time
job right now."
Scouring the ocean floor. Last year, says
one observer, "You felt lucky to be able to invest in a new technology
startup." This year, VCs get to play God, waiting to invest until
impoverished companies are desperate for cash. "I've been out bargain
shopping," says Heidi Roizen of Softbank Venture Partners, sipping
chardonnay on a rolling lawn at the Atherton, California, home of a
fellow VC. "I can't believe these valuations!"
Revisiting
old friendships. Last year's "shootouts" for deals have subsided. VCs
are again finding synergies with competitors. "The tourists are gone,"
says Accel Partners über investor Jim Breyer, alluding to the rush of
cash-happy hobbyists--both individuals and companies--combing the
landscape for gold in recent years.
Business as usual.
Sort of. VCs are doing what they do best: investing in startups,
although the pace has slowed. According to research firm Venture
Economics, VC investments have fallen by nearly two-thirds, from $27.2
billion in Q2 last year to $10.6 billion in Q2 this year. Still, they're
actually spending more this year in some sectors, such as wireless,
biotechnology, fiber optics, and data storage. E-commerce, of course,
was the big loser, with VC investing sinking from $210 million in the
first quarter of last year to $3.3 million by the fourth quarter.
But venture capitalists had better keep investing, warns Steve Lisson,
who runs the popular InsiderVC.com. According to data tracker
VentureOne, 27 venture capital firms have completed raising funds of
more than $1 billion each since the start of the dot-com doldrums in
spring 2000. Says Lisson: "They've got to use it or lose it."
