Venture Capital Panel

This evening I went to panel discussion held at the Vilna Shul entitled: "Boston-area Venture Capital (VC): Looking Back on 2008 and Looking Forward to 2009". The panel had three representatives from the venture capital industry.  The most interesting nugget I extrapolated from the talk is that there will be huge changes in the VC industry.  As one of the speakers noted, the industry is facing a myriad of issues which include decreasing valuations, fewer big deals and a flight of capital. One of the most frightening problems is that many of the VC’s acquired companies at their peak valuation and since the market downturn, it is going to be a long time before these firms can be sold at for a reasonable return.

Venture capitalists are like Microfinance institutions for the US.  If you are an entrepreneur in Boston and have a good idea, you will not go to a bank to get funding; you will go to a VC. VCs are one of the reasons of why entrepreneurship in the US really pays off.  VCs have millions of dollars at their disposal and look for the next big idea for investment. I will say that the structures of Venture Capitalist firms vs MFIs are very different; additionally, the purpose for investing is dissimilar, but VCs offer a path by which entrepreneurs can quickly expand and grow.

I do have qualms with how VCs operate, and I have seen first hand how cutthroat VCs can be in business deals, but I do have an admiration (and a slight bit of envy) for their work. It will be very interesting to see how the VC industry adapts to the recession.  As my friend Sanjeev pointed out, for a long time, VCs expected ridiculously high returns from businesses (think 40x their original investment) and often they only went after the sexy or in style businesses (web 2.0 or internet bubble startups).  Now that the upward trend has ended, I wonder if a more rational and realistic approach will be taken to finding suitable VC targets.