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Venture Capital - Tuesday, January 25, 2005

How Much VC Cash is Right?

BusinessWeek hears both sides of the debate on whether the current rate of VC holdings at $20B is appropriate or if it represents a return to the bubble. BW concludes that the amount is just right and compares the amount to 2000 when VCs put $103B into startups.

BW also hears out Steve Domenik, a general partner at Sevin Rosen Funds who says that $10B a year under VCs is the fitting number. It makes sense for a top tier VC firm to complain about all the competition that waters down their margins. But we disagree with Domenik. There are just so many more opportunities for VCs to make investments in. In the olden days there was software and hardware, mostly centered in Boston and Silicon Valley. Now they can invest globally, and the Internet has spawned legions of entrepreneuers, many of which are creating great, fundable businesses. Add more opportunities in biotech, alternative energy, nanotech, and other burgeoning scientific areas, and there are plenty of promising areas for VCs to deposit $20B.
Read - For VCs, a Virtuous or Vicious Cycle? (BusinessWeek)