When I was last involved in venture capital investment some thirty years ago most VC funds were quite small – \u00a310m was considered an OK size in the UK. Today the average fund raise is probably around \u00a3100m. The investment focus has changed dramatically. In the 1990\u2019s investment was focussed on early-stage start ups with promising technologies and it was accepted that it took time for these business to gestate. Today investments are overwhelming targeted towards \u201csoftware\u201d. Many funded businesses are simply \u201cme-too\u201d endeavours that may be interesting applications but are not really viable long-term stand alone businesses \u2013 at least not in the context of the costs incurred in \u201cgrowing them at any cost\u201d.<\/p>\n
The question is why has this happened. For a good part, the answer lies in the excess of funding that has flowed into the start-up scene. Driven by zero interest rates and the lack of return on traditional investments, a lot of funding has flowed into venture capital from non-traditional sources. Living off this funding presents an enviable lifestyle for GPs. Funds no longer make \u201cinvestments\u201d but rather place a series of \u201cbets\u201d on what they think will be the next leader in the beauty parade and are encouraged to pump up valuations so they can trade their asset at a profit. Not surprisingly as the ponzi bubble collapses we have seen a massive reduction in the valuation once given to rising stars.<\/p>\n
As times get tougher for VC-backed companies they may well find that their investors may have less interest in supporting them than finding another runner on which they hope to place a winning bet.<\/p>\n
Founders will discover that they are Sardines for trading \u2013 not for eating.<\/p>\n
If you find yourself in this situation give us a call \u2013 we may be able to help.<\/p>\n","protected":false},"excerpt":{"rendered":"
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