Invest Different. (Alan Patricof, GreyCroft Ventures)

Alan Patricof at GreyCroft Partners is experienced, smart, & to the point:

"...most of the companies that venture capitalists are funding today will find an exit through merger or acquisition. And if we expect to achieve a return in a reasonable time frame of three to five years, we are probably looking at a sale price of $20 million to $100 million. This is the valuation range where most young companies are being acquired.

To compensate for these lower gross return expectations, we must establish initial valuations, usually in the single digits, that can provide an adequate multiple return and internal rate of return..."

(read more from VC Investing Not Dead, Just Different, NY Times)

altho Patricof used to run Apax Partners, a $30B fund, Greycroft Partners is only a $75M fund.  He could easily have raised a much larger fund if he wanted; the fact that he didn't speaks volumes about where he thinks venture capital is headed in the future (even before the recent downturn).

surprising how many VCs in Silicon Valley & Boston don't have his perspective and thoughtfulness.

Comments

[kimbailey]

Hello, i am kimbailey.
So I agree They will either have to reduce the size of their funds or to increase the number of investments in your site.

------------------

kimbailey

real estate

[Chris Yeh]

Bottom line, VCs need to understand that their job is to create value based on market realities. When big exits aren't there, big funds are irresponsible.

Collecting the management fees on an excessively large fund provides short-term income, but is a losing long-term strategy.

[Julien]

I agree, and we should go further. Untill know, VCs used to have between 20m and 100m under management for each fund. They will either have to reduce the size of their funds or to increase the number of investments. Reducing the size of the funds means they will have to decrease their fees and carried interested, so they will not do it! So I think they will know have to increase significantly the number of investments they will make.

Basically, the VC marlket size is the product of "number of VC investments" by "average VC funding". If you reduce one, you have to increase the other one!

So what entrepreneurs will "lose" with lower valuation, they will "earn" it with higher probabilities of getting funded!

What do you think Dave?