John Paczkowski

Recent Posts by John Paczkowski

Sad Guys on Sand Hill Road

Sad Guys on Trading Floors may soon have some new photographs of dismay to catalog, if the Silicon Valley Venture Capitalist Confidence Index is any guide. Released this morning, the index puts VC confidence at its lowest point in the five-year history of the survey after its sixth-consecutive quarterly decline. Clearly, the deterioration in the economy is weighing heavily on the typically optimistic VC community.

“This is forming to be a perfect storm for the venture capital industry that may result in a significant contraction of firms and capital,” explained Steve Carnevale of Point Cyprus Ventures, who believes institutional investors will eventually put less money into venture capital. “This storm has two fronts. The U.S. economy and the long investment cycle associated with life sciences and clean tech. First, the economy as a whole. The U.S. is bankrupt as a country as a result of massive borrowing that has grown over 30 years. This borrowing created an inflated investment portfolio that made available capital to tertiary alternative investments like venture capital. We are at the beginning of a massive de-leveraging that has unprecedented consequences for the economy and the venture capital industry. … The industry will contract not only because of overall economic weakness, but because the fundamental investment cycle will be dramatically longer. … Now the majority of venture capital is going into life sciences and increasingly clean tech. These types of investments will take longer to produce returns then in the traditional VC investments in the computer industry. When institutional investors figure that out, they will reduce their capital availability for this kind of alternative asset. … Therefore, the VC industry will get sandwiched between the economy and it own fundamentals.”

Ugly times for venture capital. That said, as Sequoia Capital partner Michael Moritz often notes, the best time to invest is often “when people are cowering under their desks.” ‘Course it was Sequoia that just held that “RIP: Good Times” meeting last week. …

[Image credit: Sad Guys on Trading Floors]


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