Venture Capitalists Should Avoid Buyouts
from the what-to-do-with-all-that-cash? dept
Venture capitalists sitting on way too much cash is an issue that keeps cropping up around here. It seems that some of the VCs have decided they can make use of that cash by trying to become buyout specialists as well - buying up distressed companies and turning them around. However, according to this article, they might want to think twice about that strategy. Buyouts and venture investing require two very different mindsets - and many people think it's difficult to be good at both. Venture capitalists have to grow companies, and work well with people (even if many entrepreneurs think they're being stabbed in the back). Buyout/turnaround firms need to come in, clean house, and get the most useful parts of the business back on track. It's more of a hatchet job than a nurturing job. What I still don't fully understand is why VCs don't go back to the way they used to think: venture investing is a longer term investment. It used to take an average company seven years to go public, and venture funds run for 10 years, usually. So, it would make sense, with all that cash, to start investing on a five-to-seven year horizon. Unfortunately, too many VCs are still focused on the late 90s model of a two year horizon for an exit strategy.
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