« July 2007 | Main | September 2007 »
Matt Marshall just published a article on the credit crunch subject.
I had been talking to Matt on the subject and I had provided him with further thoughts, which he just posted as a guest column:
The New York Times ran an article today about Bigfix and it's viral ad campaign. I typically don't post about my portfolio companies, but this subject is entertaining.
There was also a good article in the San Francisco Chronicle on the beginning of the campaign: Viral campaign spreading.
Click here for link to today's article,
I'm quoted in today's New York Times.
“People are being scared away from other investment strategies,” said Keith Benjamin, a partner at Levensohn Venture Partners, a San Francisco firm that focuses on technology investments.
Click on here for link to article.
I believe the current credit crunch can actually help venture returns. Why? Because it will help build momentum for the technology IPO market, which is what really drives venture returns. Investors have finally demonstrated a willingness to buy technology IPOs. There were some 36 technology IPOs in 2006. I expect to see that number roughly double in 2007.
In the middle of the liquidity crisis, VMWare went public, traded up sharply and stayed there.
Why do tech stocks now look better? Because alternative investments don't look as attractive. Investors shied away from tech stocks for years, fearing the post-bubble risks. Leveraged investing strategies were perceived as less risky. For the last five years, I’ve watched the skyrocketing returns from hedge funds and buyout funds with jealousy, wondering if I was missing something. I believe we have just witnessed a sharp shift in perception of the risk for those leveraged investing strategies.
I have taken a long-term view on the positive potential for venture returns, but admit it’s been a bit tiring to be in the less loved asset class. I have assumed that much of the returns from hedge funds and buyout funds have often simply been a function of magnifying small fundamental returns with significant leverage. Of course, there are some great managers in each class who deliver strong fundamental returns, but that seems to have been the exception. Less credit and/or more expensive credit will hurt these asset classes.
Fortunately, venture is not dependent on credit. I do not see a sustained credit panic and public market meltdown. I believe the financial markets will recover, albeit with tighter credit. The current environment could prove ideal for venture returns. My key assumption is that technology IPOs become more attractive as public market investors look for investment returns from growth, not leverage.
All this reminded me of Paul Simon's song. As hedge funds and buyout funds may have hit their ceiling, there is a good floor under technology venture today.
Paul Deninger, Vice Chairman, Jeffries & Company gave a great talk at the AlwaysOn: Stanford Summit, with the dramatic title, Why Aren’t VCs Happy? It starts out a bit heavy, suggesting that VCs should be unhappy in the currently shaky financial market, but ends with a constructive point. The key to future happiness will be to resist the temptation to sell companies prematurely and make the effort to prepare companies for the public markets. He asks what if Cisco had sold itself to AT&T instead if going public at roughly a $250 million market cap. He notes that the public markets are now receptive to growth companies with a market capitalization under $500 million, counter to the post bubble myth. I agree that the key to venture will be to patiently strive to create growth companies and be prepared to undertake the costs and hassles of the public market in exchange for the potentially significant rewards.
Recent Comments