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Friday, March 17, 2006

The VC Mood In The Valley : Paper Bullishness & The Cold Reality

While the esteemed Ray Lane & the well known Matt Miller keep publicly exuding increasing confidence of investors to back new initiatives in the more challenging enterprise space , many tell me that the risk propensity shown by the VC’s in general are coming down. Sramana Mitra captures its best : As she sees it, “In 2006, the classic venture capitalists have pretty much shunned the notion of risk capital, in favor of growth capital”.
Selective Excerpts from her post : “Today, there is a lot of activity in very early-stage, built-to-flip venture capital, where from the get-go, the assumption is not to build a company, but to focus on making a quick million or two. The entrepreneurs out there who have the ambition to build a real, large, multi-billion dollar company - should know that Silicon Valley has changed fundamentally. Highly speculative, capital intensive deals that require 5-7 years to build, are less popular these days. Especially, if you have a contrarian, one-of-a-kind business idea that goes against the grain of the prevalent trends, investors will ask you to find ways to either diminish the capital requirements, or reduce the startup risks. Today’s norms are to find some in that category of “Built-to-flip” or “Built-as-an-accident” deals, from which you weave together a private equity backed – “ Venture Buy-Out quilt” “.
To my mind, these are applicable only to the beleaguered enterprise software segment,the Web 2.0 world seems to be exempted from all these desings.Obviously funding fuzzy things are perhaps more glamorous and attractive returnswise. fully agree with his view that technology investors are excited about consumer opportunities now( In fact I recently wrote briefly questioning the rationale behind this excitement – but no doubt excitement remains), but enterprises want innovation. And enterprises continue to spend billions on IT products year after and there are still many unsolved problems in business computing & notes that there is a lot of innovation to come in this industry & predicts that the enterprise software companies that move to innovate and dominate today will be the most successful companies five years from now

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