To be a VC, or not to be a VC? You Should Have Been There for DealMakers Breakfast | February 26, 2009
by “Should Have Been There Guest Blogger” Larry Blumsack, President, Zoka Institute
To be a VC or not to be a VC? That question was answered with a resounding yes from four veteran Boston
area VCs last week at the Dealmakers Breakfast. “Outlook for Venture Capital Investing” was the title of the breakfast panel moderated by Jack Derby, and for these folks the outlook is very good.
All the VC participants with a positive up-beat outlook believe:
• There is light at the end of the tunnel.
• This is the best time to invest.
• Deal flow is not an issue.
• Inventory is needed on the shelf when the market turns around.
On the other hand, they are not throwing caution to the wind. The most telling statement for venture backed companies came from Todd Dagres of Commonwealth Capital Ventures. “Cut all of the fat. Cut some muscle and if you hit the bone, that’s okay,”
Mike Fitzgerald believes “it is the best and worst of time. The greatest challenge being that liquidity is drying up. There isn’t much cash and companies with little cash have to manage even better.” Fitzgerald stressed that companies need to substitute time for capital. Q1 and Q2 will tell us where we stand.
John Simon of General Catalyst Ventures plans little change in their pattern of investing in 12-13 companies a year as they go forward. General Catalyst if working off a $700 million fund they raised in 2007. He sees a robust market and liquidity in 7-10 years for VC backed companies with the rebound beginning in 2013. Yet, to make it CEOs must focus on building the business instead of raising funds externally.
Controlling cost structure is the mantra to portfolio CEOs from Axel Bichara of Atlas Ventures. Still, he believes this is the best time to invest in early stage companies with great entrepreneurs, a future market and competitive advantages. In his opinion only a few VCs are doing early stage funding.
Other messages from across the panel were cost control for CEOs; VCs need to set a clear picture of how much capital is needed over the life of a company to realize a return; and they need to be more selective in the companies they invest in.
Straight shooting Dagres said that “dumb money has left the room, in the form of strategic corporate buyers and hedge funds, angels are less angelic, and the best financing source is customers.”
So, opportunities are out there for new investments, and survival for existing portfolio companies is all about reducing the burn rate and getting customers.
