The debate du jour is whether Silicon Valley is in the midst of another bubble because untried and uproven businesses are attracting big-ticket investments and rumored ridiculous valuations (Facebook anyone?). Yet, most of us concede that something just feels different now when compared to the slightly hysterical optimism of 1999.
Gary Rivlin has this piece today in the New York Times that explains, in part, what’s different now and the answer is: VC discipline. In the dot.com heyday, VCs rushed to invest in the latest start-up in fear of missing the boat and without conducting proper due diligence. A lot of now-laughable companies raised obscene amounts of money this way.
Those days are over, Rivlin writes.
Despite the financial drubbing suffered by those who invested in the venture funds raised in the late 1990’s, rich individuals, pension managers and others have been eager in recent years to invest once again. This time around, however, many of the same venture capitalists who raised billion-dollar funds in 1999 and 2000 are now raising more modest-size funds of $250 million to $400 million. V.C.’s are turning away cash — often saying no to many more potential investors than they tell yes.
While some crazy schemes get fast funding today too, calmer heads are prevailing more often than not.
Nowadays, according to an informal survey of venture capitalists, they typically spend a couple of months doing due diligence before investing in a start-up. Every once in a while, they say, they might cut a check within a couple of weeks of learning about a potential deal — but that’s if they have been presented with an enticing opportunity to invest in a nifty money-making idea being peddled by a set of serial entrepreneurs, rather than a me-too scheme packaged by a group of man-child M.B.A.’s, none of whom have a convincing plan for how they might one day turn a profit.
Cynthia Brumfield at 8:00 AM|Comments(0)
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