On Tuesday, February 1, 2011 in Palo Alto at Pillsbury Winthrop, SDForum presented a Quarterly Venture Breakfast with Pillsbury Winthrop and PricewaterhouseCoopers. Allison Leopold-Tilley of Pillsbury Winthrop moderated panelists Steve Bengston of PricewaterhouseCoopers, Tim Chang of Norwest Venture Partners, Mark Gorenberg of Hummer Winblad Venture Partners, Todd MacLean of Accel Partners and Jon Sakoda of NEA.
Where 2009 was a tough year, 2010 was a mixed year. Venture capitalists invested ten billion dollars more than they raised. Something has got to give and it will probably be the weaker VCs. Most of it went to cleantech, biotech, and medical devices facing infrastructure and regulatory obstacles. Meanwhile the mobile space grew with the demand for smart phones and the services they use.
With the economy down for so long, there is a thirst for growth. Companies with lots of cash are looking for new opportunities. The problem is the symbiotic relationship between M&A and IPOs does not work well in environment with Sarbanes Oxley and investors burned by too many bubbles. Few startups want to have an IPO and therefore have less leverage in negotiating M&As. Not every startup is like Facebook where they can attract large amounts of investment from Goldman Sachs and Russian private equity.
Which brings up the issue of foreign investment and growth. China has bigger market, more companies, more growth and more deals than the United States. While many Chinese startups come to America for the prestige of getting money from Silicon Valley VCs, eventually they may get more money staying home. The question is how to exit in a market that may be less transparent or stable.
The lack of foreign capital could mean a return to normal. At this point the number of jobs and the amount of investment in Silicon Valley are about where they were in the 1990s, before everything was caught up in the dotcom bubble. Most of the VC money in the country is still spent here. As VCs chase bigger deals, super angels are stepping in. While investors create wealth with M&As, they do not create jobs. Large companies are buying startups not just for their intellectual property but their talented employees. This process only consolidates the number of jobs. In order to increase the number of jobs, we need to increase the number of IPOs.
The next year will see the further rise of Apple, Facebook and Google platforms in the mobile space. Moving operations to the cloud will be normal. BRIC countries will continue to grow while other countries try to emulate them. After years of decline, there is a chance for growth.
Copyright 2011 DJ Cline All rights reserved.