VC Outlook 2013

At our recent LP meeting we presented our view of where the venture capital markets were today, and where we thought they were going. A year ago, most funds had ebullient outlooks, as we were amidst the Social Mobile Local bubble.  Zynga and Groupon had gone public, and Facebook was anticipated to set the stage for a new tech boom, much as Netscape did in 1995 and Apple in 1980, kicking off two periods of above normal venture returns. Oh well.  This year there is a decidedly mixed picture: on the one hand, schaudenfreude from the bigger VC firms, who smugly atone that Enterprise is Back! and along with it Venture As It Used To Be Done; and on the other, the continued growth in the Lean Finance model.  We looked at the data, and perhaps more importantly, the perceptions of the data, and drew our own conclusions.

2 comments

  1. Mark Lonergan · · Reply

    Duncan,

    Couldn’t agree more with your findings. The simple truth is that VC has ALWAYS depended on the 20X+ companies in their portfolios to make workable IRRs happen.

    When that doesn’t materialize, venture firms have to plow more resources into portfolio companies in order to get only moderate returns. IPOs happen very rarely now, and corporate acquisitions are decreasing in both numbers and valuations. Ultimately, they have to use more time and money in order to leg out the singles and the doubles.

    A compelling case for what you’re building at Bullpen…

    Mark Lonergan

  2. Jeff Allen · · Reply

    Duncan,

    This is nearly the same presentation I gave to MY limited partners in 2002! Some things never change! The lean model does work, all you need is the credible threat to go big and the outcome for large (enough) valuations (for Bullpen) at exit time is very good indeed.

    You can sustain a better outcome for your LPs with your approach than the larger VCs. There’s a huge misnomer that more money in any given deal means less risk. Just like with most things in life – build a venture in moderation. You need enough capital to pay your bills and support your customers (and that amount is not zero) but you also don’t need to go hog wild raising $50m for no reason. If you have to raise $50m for your venture backed deal, you better be shoring up the balance sheet for an IPO or acquiring competitors to sew up your space. Otherwise, you probably don’t have a real market …

    Keep it up!

    Jeff

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