Venture Capitalists: Buying High, Selling Low
from the not-the-greatest-strategy dept
We were a bit confused following the last dot com boom when various venture capitalist went into hiding when it came to new investments. Suddenly they said that since the market was bad, they wouldn't make any more investments. That didn't make much sense. After all, VCs are supposed to be investing for the long-haul -- usually in the range of five to seven (plus) years. What the market is doing today is rather meaningless. In fact, investing heavily during a downturn is often a good strategy. There are fewer competitors investing, you can invest at lower valuations (buy low!) and your investment has more time to mature against less competition. Yet, it looks like many venture capitalists are taking that same strategy again, with many deciding that it's time to hold off on doing new investments until the wider market appears to improve. The worst stat in the bunch is that VCs are particularly shying away from seed stage deals -- which are the cheapest deals that need the most time to mature anyway. That's effectively a strategy that says says they'll wait until it's more expensive to buy again. Venture capital is called risk capital for a reason. If VCs don't want to take risks, they shouldn't be in the business. About the only reason I can see why it might make sense for VCs to hold off investing is if they really think their own investors will default on capital calls -- meaning they really don't have as much money to invest as they thought they had. But, if that's the case, VCs are in bigger trouble anyway.