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Elite VC giants still investing
San Jose Mercury News
Matt Marshall
May 31,
Now that they've gone gorilla size, will the elite venture capital firms help stem the downturn in venture capital investing?
After
the March 2000 market crash, elite VCs scrambled to triage their
portfolios. Only recently have they started to peer out of the
graveyard.
But they've undergone a profound change in nature:
They've become monsters. This is good if you're an entrepreneur shooting
for the moon. It's fatal if not.
In 1995, only one top-tier
fund, TA Associates, had raised a billion dollars. But since the crash,
15 top-tier firms have raised funds of that size or more. Many --
including Worldview Technology Partners, Greylock, Austin Ventures and
Oak Investment Partners -- announced their new funds this year, well
after most of the market damage.
Steve Lisson, of InsiderVC.com, says the amount of funds raised since the crash goes against the "drought" thesis.
"The
perception that there's going to be less venture investing is totally
misplaced," he says. "These VCs need to get into lucrative investment
opportunities, and they're going to want larger stakes. They're going to
have to step on the gas even more."
Similarly, he adds, if an
entrepreneur offers an opportunity for a "mega" investment, he'll be
able to negotiate more favorable terms, because the big venture
capitalists will all want in. On the downside, entrepreneurs that don't
show home-run promise will struggle.
True, some VCs that raised
large funds say they have slowed their investment pace. Flip Gianos,
partner at InterWest Partners, said his firm hadn't expected the
magnitude of the downturn when it raised its fund. If it takes waiting a
year for strong opportunities to come along, VCs will wait, he says.
Others
counter that size has forced them to invest more in later-stage
start-ups because they soak up more money. Michael Darby, general
partner at Battery Ventures, says his firm still focuses on early stage
deals, but "in this environment, the fact that we want to deploy capital
means we're looking at those later-stage deals."
There's another
reason for hope after the crash, Lisson says. Many VC firms have been
able to negotiate stellar terms with their investors -- even better than
those they negotiated just a couple of years ago. That's also a sign
that investors still have faith in the VCs, he said.
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