Monday, September 22, 2008
Local VCs Assess Wall Street, Technology Investment Climate
How is the instability on Wall Street affecting local venture capitalists? According to some local Southern California venture investors, it absolutely is affecting how they are thinking about the investment environment.
John Babcock, a Managing Director at Rustic Canyon, told us that "while panics are a regular part of free markets, we are definitely into uncharted territory here in terms of the size and speed of the government response to prevent systemic market failure. " He explains, "Our partnership is spending time evaluating the impacts on our portfolio and our outlook on future investments."
"The biggest single issue is probably more psychological, than anything, "Robert Kibble, Managing Partner of Mission Ventures told us, explaining, "the result will be--and already is--that venture capitalists are going to be more cautious, which is they are going to be less likely to fund companies without solid, relatively near term, revenue generating business models." Kibble, who was returning from a board meeting of the National Venture Capital Association (NVCA) Friday, said the topic was definitely on the minds of other venture capitalists on the board of the NVCA.
The question is, what does this mean for entrepreneurs and companies looking for investments?
"I expect that we'll see a situation similar to 2001 where Series A investments continue to be made at a relatively steady pace," Babcock told us, but also said there might be "a compression on pricing for Series B and later rounds." Plus, Babcock says the new money in investments will demand more process, and/or lower valuations.
Kibble said that he expects that "Companies who would have been funded easily one or two years ago, might find it much harder to get funding today." Nevertheless, he said that his firm, and others with money, are still very active.
Kibble "The bigger issue is the IPO market," he said, saying the closed IPO window--and regulations like Sarbanes Oxley--are still the more serious problem for venture capitalists and entrepreneurs, and causing lots of issues for the industry as a whole.