Amid Fiscal Uncertainty, Venture Capital Is Way Down In Silicon Valley 421
Hugh Pickens writes "With the 'fiscal cliff' just weeks away, Chris O'Brien writes that venture capital fundraising in silicon valley is down, the amount invested is down, the number of folks investing in venture capital is down, and the number of VC firms and partners are down. 'The people I talked to in the industry sounded grim even as they tried to make the case for optimism,' writes O'Brien. 'Still, it remains difficult to identify a clear path for turning things around for the battered venture capitalists who make Silicon Valley hum.' So what's wrong with the VC industry? The problems are many and complex but they can be boiled down to one thing: Not enough exits. For the size of venture capital being raised and invested, there simply aren't enough initial public offerings of stock or mergers and acquisitions to generate the returns that funds need. Venture insiders blame the global economic uncertainty. They believe that is part of the reason that giant corporations, which have amassed huge piles of cash, are just sitting on it, rather then using it to acquire startups. 'The numbers are way down,' said Ray Rothrock, a partner at Venrock. 'All these companies with these fantastic balance sheets, and nobody is really buying anything. With all the uncertainty they're facing with the economy and taxes, buying little companies is way down on their list.'"
Re:Who could have foreseen it? (Score:4, Informative)
Hows austerity working for England, or Europe in general?
http://www.businessinsider.com/chart-of-the-day-us-vs-uk-growth-2012-4 [businessinsider.com]
Re:Oh no (Score:1, Informative)
Good friend of mine had $30 M lined up to start production on light aircraft. Given the tax the rich election, thats not happening. I cant blame the investor, but its 80 jobs that didnt happen due to economic (un)certainty.
Re:financial cliff, but US has 11 aircraft carrier (Score:0, Informative)
Since we could cut the entirety of the U.S. military budget and still be running close to a trillion dollar deficit, your focus on only one aspect of the financial picture seems pretty stupid. Just sayin'.
Re:financial cliff, but US has 11 aircraft carrier (Score:5, Informative)
I'm actually responding to the two anonymous trolls that tried to say that welfare was more than the military budget.
Ahem... Military budget for 2010. 683.7 billion. http://en.wikipedia.org/wiki/Military_budget_of_the_United_States [wikipedia.org]
Or, here's a chart.
http://www.usfederalbudget.us/welfare_budget_2012_4.html
Looks like Defense is twice as big as the welfare budget.
It took me 2 minutes to actually look at the data. I guess the two trolls never bothered to look into their own positions. Shame.
While I'm at it... From Wikipedia
CBO's preliminary estimates indicate the federal government spent $3.54 trillion on a budget or cash basis during fiscal year (FY) 2012 or 22.6% GDP, down 1.6% vs. FY2011 spending of $3.60 trillion. Spending fell across all major categories except Social Security and Medicare.[20]
Yup, Obama is out of control! Face it, Republicans blow up the deficit, democrats fix it. Republicans whining about fiscal responsibility are lying. They're the ones that have blown up the federal deficit with stupid unneeded tax cuts and huge military expenditures. Look at a fancy graph of federal deficits against presidencies.... It's freak'in obvious. Conservatives hate facts...
Re:Oh no (Score:4, Informative)
I've actually lived through a hyperinflation (Russia in the early 90-s) with peak inflation about 1000% a year. Salaries were rising pretty much in sync with the inflation.
This problem predates the recession (Score:4, Informative)
This has little to do with the recession.
I go to occasional VC conferences in Silicon Valley, and get to hear what the VCs are doing. It's not looking good. The VC industry as a whole hasn't made money since 2001 or so. During the dot-com boom, many new venture funds were created, resulting in an influx of dumb money. Most of them haven't been profitable.
The problem is this. Before the dot-com boom, venture capitalists usually funded a startup which was going to make something. So they'd fund a few engineers for a few years, and about 1 time in 10, something good would come out that paid for the unsuccessful tries. This was a good business model and it drove Silicon Valley.
Dot-com startups weren't about technology. They were about marketing and market share. So they had to be funded beyond the R&D phase, well into the growth phase, before the winners and losers became clear. The loss per failure was much higher than when VCs were involved in technology startups.
This model has persisted in the post dot-com era and into the "Web 2.0" era. Most of the ideas one sees at VC meetings are minor variations on popular ideas. I've seen a presentation for a social network for cats. Some innovative technologies are proposed, but often they're not big wins.
About 1 in 10 VC-funded companies makes it big. 2 to 3 in 10 go bust. The rest end up in "zombie mode" - they generate enough cash to pay their expenses, but can't pay back their investors. A big headache in the VC industry is dealing with the growing army of zombies. They're more profitable alive than dead, so they're not killed off, but they're a net loss. There are a lot of half-dead "social" startups around. Tech startups tended to be sold off for the technology or shut down. That's what VCs mean by "lack of an exit".