At the Silicon Valley VC Summit, Scary News Followed by Optimism

I asked Bill Gurley whether a new model for early stage funding would emerge now that the VC industry is "slimming down" (perhaps shrinking by 50%) due to the rebalancing of university endowments out of "alternative assets" (illiquid stuff like VC funds) .He answered that the top tier VCS on Sand Hill Road still routinely fund two entrepreneurs and a Powerpoint. He really called the emergence of angels and angel funds a creation of the press, and accused the angels of having a "loud microphone" about what they are funding.

Gurley denied that VCs are moving away from early stage investing, although the panel following him said that if the IPO market heats up next year, as they all think it will, the VCs will go for later stage investments that can become liquid sooner.

Most of the VCs on the panel following Gurley ( David Cowan, Bessemer; Todd Chaffee, IVP, Dixon Doll (DCM) Deepak Kamra (Canaan Partners), Ann WInblad, Hummer WInblad) are trimming portfolios and not hiring.  They are looking forward to raising less money, and having to support only the most promising of their companies.

On government intervention: These VCs know that stimulus money will benefit companies in clean tech and broadband, but no money has flowed yet. In the capital intensive industries of installing solar farms and increasing broadband to rural areas, there MUST be incentive from the government. In health care, a proposed excise tax on medical devices is not welcomed:-)

On Clean tech: Cleantech, partnering with big energy companies, will become a large industry, but there's a limited supply of talented management that can take VC money invested in clean tech and grow the companies. And, as opposed to IT, there are a very limited number of acquirers for clean technologies, which means that the entrepreneurs who invent the technology have to grow the company.  Most early stage clean tech companies are going nowhere, because they can't get the larger rounds to build a company like Cisco around clean tech that can buy early new technologies and use its marketing muscle to get them into the market.

On exits in 2010: what percentage of companies will exit in 2010? not much. 90% of exits in the last few years have been in M&A. In 2010, US will be one of the smallest markets for IPOs. There will be more IPOs next year, but just a modest number. We can see a market environment returning to what it was before the crisis, but we still aren't going to be in a place where IPOs are going to be what they were before 2000.

Ann Winblad: IT growth has slowed, so the IPO and M&A opportunities have not increased in the IT space. We have to see how much large enterprises have cut their budgets to see what the opportunities are in IT. Prediction of high profile IPOs in 2010. Question was aksed: "Will Twitter go public" and Todd Chaffee  (Institutional Venture Partners) refuses to comment..Since he's an investor in Twitter, I think this is a qualified "yes."

Venture-backed IPOs went from 250 in 1999 to an annual average of 20, and last year dropped to 7. Chaffee thinks we will have about 50 this year. Asked again about Twitter, he says many large companies are getting acquired right before they go public, because they've got their operations and financials in shape for SarBox. The threat of a really good company going public will produce more M&A, and the process of preparing to go public cleans up the operations.  But don't plan on it without $100m in revenues.

Posted via email from Not Really Stealthmode