1 / 11

Venture Capital and the Internet Bubble: Facts, Fundamentals and Food for Thought

Venture Capital and the Internet Bubble: Facts, Fundamentals and Food for Thought . Thomas Hellmann and Manju Puri. An Industry in Crisis?. Or an industry on a much need diet?. Rates of return. Overall VC industry 1-year average: -18.2% 3-year average: 54.5% 10-year average: 28.4%

justus
Download Presentation

Venture Capital and the Internet Bubble: Facts, Fundamentals and Food for Thought

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Venture Capital and the Internet Bubble: Facts, Fundamentals and Food for Thought Thomas Hellmann and Manju Puri

  2. An Industry in Crisis?

  3. Or an industry on a much need diet?

  4. Rates of return • Overall VC industry • 1-year average: -18.2% • 3-year average: 54.5% • 10-year average: 28.4% • Internet: • 1-year average: -38.3% • 3-year average: 69.7% • Telecom: • 1-year average: -27.7% • 3-year average: 35.7%

  5. What are the fundamentals of venture capital? • Alternative Investment Class • Real Estate versus Venture Capital? • VC = Value-added investors? • Stanford Project on Emerging Companies • Interdisciplinary project • 170 Silicon Valley high tech start-ups • Data on whether and when companies get VC • No dotcoms!

  6. SPEC: The external product market effect of VC • Obtaining VC associated with faster time to market • hazard rate increase by factor of 1.79 • Larger effect for innovator companies • Innovators self-select into VC • Time-to-market effects does not driven seem to be driven by selection alone

  7. SPEC: The internal professionalization effect of VC • Founder replacement • Support or Control • With VC: 61% of founders replaced • Without VC: 36% of founders replaced • VC gives shorter time-to-replacement • Friendly or hostile? • In 40% founder remains involved • Effect same for VC and non-VC replacements • VC effect part of a broader pattern of professionalization • Executive team building • HR policies

  8. A brief history of the structure of VC industry • Old days: • Tight collusive networks • Post 1979 evolution: • Differentiated competitors • Unique skills and proprietary deal-flow • Returns justify “expensive” GP contracts

  9. The Internet rocks the VC industry • New opportunities: • Big and visible • Low barriers to entry • Winners materialize faster than losers • Steady state: see mix of new winners and older losers • Wrong extrapolations create feeding frenzy

  10. The VC industry responds • New entrants with little relevant experience • Wall Street types • Effect on experienced VCs • Danger of defying trend • Temptation of increasing fund size • Change in VC business model: • Invest in more companies • Place more money => less syndication • More later stage • Increase in diversity of VC structures • Incubators, corporate VCs, bank VCs, angel networks

  11. How can the VC industry recover now? • Can VCs live by their own medicine? • Defensible value-proposition • Value-adding component • Competitive differentiation • Building a franchise • Accountability • Inconsistent reporting • Governance • Legal constraints • Reasonable valuations • Revisiting GP terms • Implications for public policy! • Focus on enabling public goods

More Related