In response to last week’s item on “inflated” venture capital valuations (BVWire™ # 59-2), Neil Beaton (Grant Thornton LLP) suggests that PE Week Wire™ editor Dan Primack take another look at the bigger picture of VC investment and returns. “He is looking at ‘historical vintage returns’ over a very short period of time,” Beaton says. “As we all know (and you’ll recall some quotes from the Delaware bench about misusing short term returns in valuing long-term assets), short term returns are volatile, and even more so in VC funds.
“The important thing to remember here is that VCs are continuing to invest in NEW ventures; the old ones are just that, old. Opportunities, like cash flow, are forward looking, so a lot of 409A work is still coming down the pipeline as new funds get invested and funded companies get additional capital to continue. The ‘inflated valuations’ referred to by Primack exist in many funds and they have a way of working themselves out. At any rate,” Beaton concludes, “I haven’t seen any slowing of investments and don’t see any slowing on the horizon for now. There are still LOTS of opportunity.”
Note: In a follow-up to his own item, Dan Primack reports that new data (from PricewaterhouseCoopers, the National Venture Capital Association and Thomson Financial) show “the highest number of VC financings since Q3 2001, with nearly 977 deals. The actual number of dollars invested was down slightly from Q1—$7.13 billion compared to $7.43 billion—but it still topped any other quarterly tally from between 2002 and 2006.”
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