Thursday, December 27, 2007

Is 2008 the year bubble VC firms fold?

Back on line after 5 days of Christmas: food/drink/kids/siblings/parents and no time to think.

Pundits have been predicting the demise of bubble era venture capital for years now, but maybe it is finally going to happen. The article Time nearly up for bubble era venture funds predicts that 2008 is the beginning of the end - a result of approaching the 10 year life of many funds that were started in 1999/2000.

There are many reasons funds may not renew and living in the valley I see many close up through my friends. In one case the fund was very successful prior to the bubble, with many big telecomm and semiconductor hits, but when the bubble happened they over extended and had one fund which was a disaster. The senior partners had the track record to raise another fund, but they were tired and, as if often the case, they had made enough money earlier to want to focus on other parts of their lives.

The generational change is definitely challenging for some firms too. Seasoned partners have run the firms for 25-30 years. Junior partners have come in off the early bubble companies, thinking they know how to run venture capital but not having the gravitas for it. I do believe the great firms will sort this out, but the middle rank firms will struggle without luck, although their demise will take another 10 years to be visible.

Two firms are named in the article as not raising new funds: Worldview and Diamondhead. Interesting though, since I am close to both funds, is that both could have raised new funds, but are chosing not to. While the bubble effects definitely conrtibute to their decisions, there's a human story in each case that is just as much of a contributor. In the end all businesses are about people and what they want out of life.

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