The Silicon VC's Bad Bets

from the have-you-heard-of-betting-everything-but-your-shirt dept

Fri, Jan 19th 2001 1:20pm — Ryan

Some Silicon Valley VC's have started to get into the questionable habit of giving bridges loans to struggling portfolio companies in the hope that they'll recoup the money in a sale (if one ever happens). I really do wonder if these deals are smart for VC firms. If these companies eventually fail (which will probably happen to the vast majority) how will they recoup the loss? I'm a believer in occasionally fighting the market, but I'd make sure that they don't get into the habit of handing out bridge loans easily (and instead allow financing firms that specialise in bridge loans to take the risk).

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Mike (profile), 19 Jan 2001 @ 1:43pm

They have a phrase for that...
It's called throwing good money after bad, and it's hard to avoid... People under pressure tend to forget the concept of sunk costs... Then again, if there actually is the real possibility of making the sale, it could make sense. I think many of these guys may be overestimating that possibility in their minds.
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Ryan, 22 Jan 2001 @ 10:34am

Re: They have a phrase for that...
I wonder how much this has to do with many venture capitalists relative inexperience in a slowing markets (and therefore less with the concept of realistically getting there money back). You never know company fire sales might get more frequent (in which getting a reasonable return is almost impossible).
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