Do New VC Funds Spend Cash Faster?

from the just-wondering dept

It’s no secret that VCs have started opening up the purse strings quite a bit in the last year or so… but there seems to be a debate as to why. An article about the rise of VC fundings in the Pacific Northwest says that the reason is because so many VCs have just raised new funds, and are eager to invest them. The argument sounds compelling… until you look back at the last cycle of VC deals. In the 2000 and 2001 time frame, a lot of VCs raised a tremendous amount of money just as the last dot com and telco bubbles were collapsing… and then they sat on the cash. Then, the complaint was that these firms had no urgency to invest, since many funds have 10 year lifespans. It seems more likely that the recent funding boom is based on a combination of factors, that include both the new funds, the older funds who are suddenly getting more desperate to put that “old” money to work, and (most importantly) signs that the market is picking up again… even if there are questions about why.

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Comments on “Do New VC Funds Spend Cash Faster?”

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Anonymous Coward says:

VC Limited Partners (investors) get tired of seeing a half-dozen guys drawing $1 million-plus salaries (not to mention carried interest on the upside) while not making investments for the portfolio. There is enormous pressure to be active in order to avoid overhead reductions (thinning the partnership herd or cutting their take-home pay).

There is a strong bias toward putting the money to work.

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