Jim Rigby (Financial Valuation Group) commented on the item in last week’s ‘Wire on the “major” shakeout in the venture capital industry. In particular, he noted that the study by OVP Partners didn’t end with the cited quote, regarding the 50% drop in VC activity. The next paragraph states “the venture capital industry is healthier today than most people realize, given the magnitude of the shake-out already behind us.”
That’s true—but that also may be a way of saying that “pruning” has been good for the VC garden. A more recent article in Dow Jones’ Financial News cites the same OVP study to support the current “consolidation” in the VC industry, which has “learned its lesson from the bubble by investing less in more diverse technologies." Or as Rigby also observed, “The [OVP study] shows the maturity of the technology industry. VC systems depend on high-growth industries with a high need for cash and broad ‘people’ networks—technical, managerial, etc.” As more companies become established and growth slows, investors “are moving into alternative sources of energy such as bio-tech,” he says, “areas that can still achieve high growth rates.”
Finally, according to yesterday’s posting at VC Confidential, Google is entering the industry as another big, billion-dollar, strategic buyer, “boxing out” the boutique VC firms from making the start-up, high-growth investments. This is “yet another sign of where we are in the cycle,” says VCC. “Strategic activity tends to peak (along with angels') right before a market pull back.”
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