Philip
http://www.philipwen.com

/sarc

According to the Quarterly Venture Capital Report released today by Ernst Young LLP and Dow Jones VentureOne, the venture capital markets are heating up again. However, Texas does not appear to be the biggest beneficiary of this new infusion of…

Here’s hoping for one hell of couplet. I figure we’re exactly 10 years apart from the past boom. That puts us in the summer of 1997. Four more years! Four more years!

>> You give a good analysis,
Thanks!

>> the handful of firms with the “right rolodex” and relevant “operating experience” yield successful businesses that they fund…

I agree. Those startups who just want cash can find it with many VCs and angels. Those who recognize that a VC is a stepping stone to something more will leverage the lowered costs of the web industry today in order to hold out for the better VCs. Let’s face it, there’s virtually no long-term viable web companies that haven’t passed through the VC stage. The hope is that startups take it as a stage, and not a goal. That’s certainly the case with mine. I have other web properties that earn my living, leaving me free to develop the one for which I’ve applied to TechCrunch20. I went for TC20 mainly for the contacts and the ideas, not the money. Really. I mean that.

The lack of quality startups willing to accept money just thrown at them, combined with a pool of money that has grown because of the natural market efficiencies tells me these things, 1) we’ll soon see management consulting firms enter the market in the role that VCs (should) play, as advisors, board members, and taking a percentage for services but not supplying money, and 2) founders ‘tokenizing’ the VC process, as we see with the recent effort to charge people to see betas. Both of these are threats on the VC horizon, and they should be scared.

As to ‘non-quality’ startups, I suspect there’s no end to those. I’d enjoy seeing Arrington’s email for one day, just to see how much junk flies by. These people will take anything, and so far seem to be sopping up the extra money without harm.

Antje Wilsch:
>> Who’s going to buy all these companies?

You got that right. The IPO market simply hasn’t opened up anywhere near what it was ‘97-’00, and that’s why I say we’re certainly not in a bubble. But ultimately, there’s got to be an exit strategy for every investor. I’m hoping Yahoo’s efforts to restructure succeed, and cause them to look at more aquisitions (hint, hint).

The private equity market as a whole has overextended itself and while the web startups may be a contributor, they won’t be the sole reason. The benefit to the web startups is that they have relatively low operating costs and can weather a downturn in the economy if their product is as good as they claim.

Thank you for some sanity. I could not agree more. The VC “community” in general gets too much credit. Yes, there are a few firms that actually have the Midas Touch, but for the most part, they live off the management fees from their funds and pray (like the rest of us) that their investments pay off and at least keep them employed. As an industry, their rate of return barely justifies the risk. Unless you’re in with Benchmark and the other A+ players etc, you’d do better to buy a no-load mutual fund which tracks the major indices.

Essentially, the VC industry is organized gambling. Make ten bets, know one will go through the roof and pay for all of them and perhaps more, another two will do ok, and the other seven will tank. Easy to make big bets if it’s not your money and it’s your job to make those bets, no? These guys are skilled at raising money, negotiating term sheets and taking advantage of any leverage they can get. And they perpetuate all this despite consistently delivering mediocre returns for their investors.

That having been said, they do have a vital role in our economic system; I just laugh when I hear people talk about them as if they are doing something extraordinary. They are just executing a formulaic business model. All that talk about “rolodex help” and “operational guidance” and “strategic thinking” is just a sales pitch. The odds are the odds and they are playing them.

The real innovators, risk-takers and value-adders will always be the entrepreneurs.

You give a good analysis, however you’re giving the VC community in general too much credit. It has already been well documented and reported that most VC’s haven’t earned a penny. A handful of the top firms account for almost all of the industry profits. This said, most don’t have the “right rolodex”, or relevant “operating experience”. They all have the cash, but the handful of firms with the “right rolodex” and relevant “operating experience” yield successful businesses that they fund. The others fund over investment, whether or not the start up has a good technology, business model, or founding entrepreneurs.

It premiers tonight.

I like how Justin.tv is net art, something I have studied for a long while now. Where will the monetization occur? First: compelling content.

My original computer music will provide the ambient alien background most suited to Prophecies from Andromeda to Earth Web material.

I will mention the TechCrunch/Conduit free custom toolbar in the midst of my rants and reviews, since I think it is a powerful marketing tool. I use it for myself and 3 or 4 clients of my employer. Am including it as an undisclosed Free Prize Inside for all clients, as matter of policy.

http://justin.tv/vasperspresents

The last time around, companies were playing in different areas (infrastructure, software, etc.) and in dark, unchartered waters so you can credit some of the problems to that, I’m sure. It’s better this time around, but I don’t know that it has anything to do with anybody having better business models. I was stunned to see some of the things investors put money into the last time around and am just as much with a lot of things today.

Only time will tell.

The day of “its gonna be blah….blah…and more blah blah” are over. RIP blah..

I think we’re saying the same thing. For a period, pre-2000 particularly, they weren’t the most important factor, except for cash. They’re performing better because they’ve learned that lesson. For the purpose they serve - which is not the buckets of cash - they’re better than they’ve ever been, and they the growth of funding reflects that. It’s not a boom, it’s a natural outcome of the maturation of the funding market, based on there being more money. Everyone is smarter now.

I also agree with #8 Prescott that private equity, from university pension funds, etc., is a concern, and that some are not making good investments. However, this creates good competition within the equities markets that makes every player better. Startups chasing cash will turn to sources with nothing to offer but easy money looking to gamble. Right now, (and this hasn’t always been so) the VCs are the better tool for longer-term growth.

Measuring equity speculation by IPO’s and concluding that we’re not on course for a “crash” is flawed logic. This time around it’s the private equity companies and strategic buyers (large, established companies) that are buying equity at crazy valuations. If About.com was once valued at $105 per share, is that really any different than MediaBistro.com being bought for $23 million on revenues of $5 million or $6 million?

I think there is tons of speculation in the Web 2.0 area, and anyone working in M&A would tell you that they are worried about that. The multiples that dot-com’s are asking for is eerily reminiscent of inflated P/E ratios in the stock market.

I think the business models for most of these companies are a helluva lot better than the last time around, but how do they deliver on the expectations under which they are bought? Perhaps this time around, the “crash” is less stock market driven and more jobs driven. Somehow, all of this speculation will impact folks.

P

Why is this happening, and why now? I’d read somewhere of sunset clauses where VCs have to put the money somewhere or return the funds. Perhaps this is part of it, but I think it’s because VCs continue to perform the function of ‘gatekeepers’, persons who provide contacts, leadership, and direction in an industry of youth, and are working harder at it now than they have since the end of the last bubble in 2000.

Offering a fat wallet is one thing, but having a fat rolodex is very important (in my opinion just as important) to a startup. Execution is the only thing that matters in the startup world, and VCs make that possible, and not just with money. The growth of VC investment money provides a tangible marker to say that the VCs are working harder lately to create real companies. The increased investment is a sign that the VC industry has recovered, finally having fully stripped out those VCs that jumped in for the last bubble, and are now competing for ideas by offering their true value - contacts, experience, growth potential.

I don’t think we’re in a boom of money, and certainly not in a bubble. We’re in a growing pond of contacts, and we’re seeing the efficiencies of the greater social interactions that the internet provides. Internet startups, through reduced costs, recovered long ago from the bubble, but the VCs are just now getting their act together again.

Does that make sense to anyone else?