Lessons From Softbank?

from the when-was-this-written? dept

Here’s a slightly out of place article from Wharton reprinted in News.com talking about the world of venture capital with a focus on what Softbank has been doing. What’s odd, is that it reads like it was written a year ago. It talks about how venture capitalists today are going to focus only on their current portfolio companies, and not so much on investing in new deals. That’s what VCs have been saying for a year and half or more. In fact, many VCs over the past few months have been saying the exact opposite is true now – they’re now actively searching out new deals again. This article seems a step behind the times.

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Comments on “Lessons From Softbank?”

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Clouser says:

Softbank / Returning Capital

Whether or not this is an “old article”, one trend that it pointed out, which has accelerated recently, is the returning of investor (LP) capital by venture funds. This is particularly disturbing, especially from the entrepreneurial perspective…but also from the economic paradigm — recovery and innovation will be slowed as a result, for VC’s will be less willing to invest capital and be open to innovative concepts, for fear of LP scruitiny or premature drying of one’s fund. My question is where do these institutions PUT the money once it gets returned anyway? NASDAQ is moving down, NYSE is sideways, bonds certainly aren’t that exciting return-wise. Being to lazy to use my MBA skills right now and run some kinda portfolio allocation model that would weigh the risk/reward factors, I will just go with my gut and say venture capital is just a good a place to be as bonds or stock. In my humble (and controversial, no doubt) opinion, venture capitalists need to open up to even a broader areas of investment opportunities, sectors, and company types. Herein lies the answer and the hook for keeping the money (and, godblessed, that management fee!).

D Henkel-Wallace says:

Re: Softbank / Returning Capital

recovery and innovation will be slowed as a result, for VC’s will be less willing to invest…


where do these institutions PUT the money once it gets returned anyway?

That isn’t how VC funds work. They don’t get any money right away. They get a committment of a certain amount (say I offer them $5MM for a $100MM fund). Then when they make a $20MM investment in FooTronix then send me a letter (called a capital call) asking for $1MM. Later they invest $5MM in Bogus.com and I get a letter asking for $250K. And so on.
So that money is already invested in nasdaq or whatever. And in fact I may not want that capital call because my other investments are under water and I want to wait for them to come back.
Also: let’s assume you’re a major VC firm with about 10 partners and currently a $1Bn fund (ignoring past investments). Then each partner is helping companies into which the firm has poured $100MM. How many companies is that? A lot. Either they put $10MM or 20MM into a few companies or they put $5MM into 20…and 20 companies is an awful lot to be on the board of (after all they’re also involved in pervious investments).
Better to have less money to spend. Then you can afford to make smaller investments (which is what early startups need anyway).
This is good for startups, not bad.

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