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Strategies & Market Trends : The New Economy and its Winners
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To: Lizzie Tudor who wrote (15091)11/27/2002 2:13:11 PM
From: paul_philp  Read Replies (1) of 57684
 
Lizzie,

Most of the large VC firms put together $1B funds at the peak of the mania. Some, Crossworlds for example, turned down a big fund just as the bubble burst. Some, Accel, have returned some capital to investors. The general sense is that the investors would like more money back but the VC firms are reluctant to give up the management fees since they are making money these days.

There is a structural change happening in the industry that I think marks a little maturity. The biggest VC firms now have so much money that they can no longer make VC investments - a nasty paradox. The due dilegence and legal fees they need to spend force them to make deals with a value above $10M.

While some of these firms are now outsourcing their pure VC investments to smaller partnerships, mostly what is happening is that the big VC firms are becoming more like merchant banks. There has never been a merchant banking industry serving technology since merchant banks did not have the ability to properly assess and manage technology risk. The big VC companies have that capability in spades.

The merchant banker will provide the financing for growth that the old '3rd/4th rounds' and 'early IPO' used to finance.

It will take time for a new layer of smaller VC investor to emerge. They will never have the power that the old VC firm had - the new VC firm will serve the interest of the VC/merchant banking firms.

Paul
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