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Our Take: Mark Heesen at Southeast Venture Conference
The Model Is Not Broken
Posted by ExitEvent
Topic: Events
2.25.10
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Mark Heesen is the President of the National Venture Capital Association and gave a talk and answered questions from a moderator and from the audience at SEVC this morning. He was frank and honest, and we learned, much like we learned yesterday, that while things are not terrible, they're tricky. The first question was "Is the venture capital model broken?" The answer was he's been hearing that it's broken for 20 years, and it's not broken, but it's undergoing fundamental and necessary shifts. These shifts are constant, just a little more out front at this point.
Contraction is also an issue. VCs with the NVCA have slipped from 1027 firms to around 800. The exit market is abysmal, some would say non-existent. One might think this indeed does signify a broken model -- it's an easy conclusion to make. But it would be the wrong conclusion. We think that model is not necessarily broken, but there are some gaps to fill, and a new model, while not mandated, might make things easier, especially in the short run.
What does this new model look like? We don't know yet. We do know that early stage companies are feeling the brunt of these shifts, and angels are picking up a lot of slack with early stage companies. But this leads to a more scattered, more fractured investment community. Connections may be missed, and thus, opportunities may be missed as well.
As for some of the basics - there was a definite echo of yesterday. 2010 will be a very tough fundraising year, for entrepreneurs and VCs alike. We can expect colleges and universities to dial back, and also a lot more foreign money coming into US VC firms. There will be more capital calls from the buyout community, and the shakeout will continue.
The silver lining is that, as we discussed yesterday, early stage companies are getting wiser. They're focusing more on revenue and less on the IPO (which is a good thing, as 95%+ of exits are M&A; and not IPO). Companies are turning away from the notion that they're going to IPO in five years and they're focusing on bottom line. An entrepreneur has to be realistic about the idea, the market, the competition, and the direction of the company. From the get-go.
And as for hot, also an echo of yesterday. Healthcare, especially biotech, medical devices, and health services. Clean tech will probably be the largest sector of venture investing, and cloud, gaming, and social media are still areas where investors feel there are wins left to be made.
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