The latest Go4Venture Newsletter listed some main trends of the VC funding market, e.g.:
- “Many VC firms are moving away from the venturing part of venture. This makes the “equity gap” even bigger, and there are now talks of a £1 billion government sponsored VC fund for the UK alone!
- VC firms are instead focusing on the less risky later-stage end of the market. Now that the IPO markets are closed, there are plenty of opportunities for VCs to finance more established companies. Given the current wholesale re-pricing of financial assets across the board, we are certainly of the view that these opportunities, which mix venture and expansion capital, will remain a new and permanent fixture of the market.
- Venture capital which had been synonymous with IT and life sciences is proving to be a model applicable much more widely. Internet and digital media have received the medicine. Cleantech and medtech are next on the list. Some are playing in socially responsible investments. In fact, what we see is the application of risk-aware investment strategies to fast-growing (and therefore inherently volatile) verticals where the name of the game is much more about option pricing rather than second-guessing what’s the next technical revolution is going to be. As the venture capital model spreads, it will need to adapt and become more sophisticated.
- The 10-year VC model is increasingly under pressure. Most market participants are still under the spell of the golden years of the late 1990s predicated on the Netscape model (16 months from creation to IPO (Apr ‘94-Aug ’95) and four years to the acquisition by AOL for $4.2bn in Nov ’98).”
These trends are significant for entrepreneurs and start-ups that are looking for money. It is more difficult to get money in early phase. Much less companies get money. IT and mobile are not alone, many other companies also try to get VC money. And especially this is challenging for web 2.0 and mobile 2.0 firms, when they don’t fit so well to the traditional VC format (no patented technology, more business than technology innovations, and step-by-step model to grow).
As the newsletter indicates we have a kind of paradox in VC statistics, the total dollar amount of VC investments is growing, but in practise less companies get more money, and early phase companies struggle to get money. At the same time we could also say that there is a real need for new companies to make things in more effective ways in this recession. But we cannot do it without new funding models for early phase companies.
