VCs Hit the Brakes
Alana Semuels writes for the Los Angeles Times today, "Venture capitalists apply the brakes" regarding the steep decline in fourth quarter investment in Southern California.
"Venture capitalists slammed shut their wallets during the last three months of 2008, investing 45% less in Southern California start-ups than during the same period a year earlier. The sharp fourth-quarter decline to $422 million from $764 million, turned what was expected to be a full-year gain into a loss, according to the Dow Jones VentureSource report. Venture funding to the region's businesses fell 20% to $3.2 billion.
"There was just one bright spot: investment in renewable energy continued its tear, climbing nearly tenfold for the year."
Full article Quoted: Aweli's Tony Katz, Palomar Ventures' Jim Gauer, Ernst & Young's Michael Schoenfeld and Frank
Comments
http://www.aweli.com/
Above is a link to the Aweli homepage. They say the article portrays an inaccurate picture of them, and that actually they have never been better.
The article contains quite a bit of sensationalism and no real concrete useful information. This is typical when trying to fit all the different sectors that VCs invest in into the same definition.
The article repeatedly refers to start-ups but the dollar amounts are so high that they must include investments made beyond the start-up stage. The article claims that L.A. did better with a 6% gain to $1.3bn. Los Angeles is neither a sector to invest in nor a start-up trait that indicates success. $1.3bn cannot be start-up funding alone. The figure must include later rounds. In other words existing companies are being kept alive with the bulk of that money; therefore at this point it is just an expense and does not indicate the VCs in L.A. are doing any better than the rest of the nation.
The bright spot mentioned in the article is more likely a bright speck. Saying "Investment in renewable energy continued its tear, climbing nearly tenfold for the year." does not say much without mentioning the numbers. One expensive investment could be the cause, or the numbers could have been very low to start with.
"Renewable energy" is the latest VC buzz word. It tugs at the heart strings of the people who invest in their funds. Those are either investments in science projects or investments with a well defined price limit for the sale of their products.
If we continue to hold that VCs have not lead us in the right direction for the last ten years, then we must listen with caution as they tell us what the current bright spot is.
Posted by: Matthew Artero | January 19, 2009 07:32 PM
Early stage investing will always be considered a high risk, high reward game. But what if there were smarter, more efficient tools that enabled both investors and entrepreneurs to optimize the process by making the investment process "less gut" and "more guided," could we eliminate some of the fear and confusion surrounding early stage investing and begin to truly optimize entrepreneurship? Maybe if VC firms focused on innovating rather than just collecting their management fees the whole game would change.
A great bunch of thoughts on the subject: http://cli.gs/g3BA9v
Posted by: Chris | January 20, 2009 11:29 AM