A Look At The Venture Capital World
from the to-seed-or-not-to-seed? dept
Here's a bunch of good articles looking at the venture capital world that suggest some conflicting conclusions. First, we all know that
VCs lost out on lots of money from portfolio companies that couldn't go public. We don't feel bad, though, because for the most part, those companies shouldn't go public. However, what does this mean for brand new companies trying to get started? Some are suggesting that
seed stage deals are drying up. However, another article points out that
many big name investors are now focusing more on seed stage. The reasoning makes sense. There definitely are fewer seed deals because people are being more careful and picky. Many seed deals in the last 3 years never should have been done. However, with valuations dropping like crazy, the potential rate of return from smart seed stage investing goes significantly higher. Many smart investors suddenly see the value in seed investing again - since they can get in at great valuations. So, both articles can be correct. Fewer deals are getting done, but it's more lucrative for the smart investor.
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risk and return
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Re: risk and return
The smart investor invests in companies that are more likely to give some sort of return (and that doesn't have to be going public - it could be acquisitions). Also, the fact that seed stage companies have a longer timeline (and finally, that seems to be true again), there's a much better chance that the IPO market may have bounced back as these companies mature.
So, yes, they've certainly become more risky, but it's a calculated risk, and obviously some of these big name investors have done the calculation and believe the potential rewards outweigh the risks, when the valuations are so low. I tend to agree with them.
So... I don't see how this is a "bad deal" for the investor. Just because the IPO market sucks now, doesn't mean that all investments that are done today will fail.
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