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What’s New in the World of VC

What’s New in the World of VC. Jonathan Aberman Managing Director Amplifier Ventures. Jonathan Aberman. Founder of Amplifier Ventures – seed venture capital fund. Adjunct Professor, Smith School of Business, University of Maryland.

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What’s New in the World of VC

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  1. What’s New in the World of VC Jonathan Aberman Managing Director Amplifier Ventures

  2. Jonathan Aberman • Founder of Amplifier Ventures – seed venture capital fund. • Adjunct Professor, Smith School of Business, University of Maryland. • Advisor to government and universities on technology creation processes and policies. • Former hedge fund trader and venture capital attorney. • Founder of Accerta Group – consultants to family owned businesses.

  3. Where Is All the Venture Capital? • Venture Capital fundraising at mid-1990s levels. • Angel investors abandoning seed and early stage financing. • Fundraising concentrating in “existing teams” and into historically large funds. • Large VC Funds making un-VC investments.

  4. Meanwhile Capital Goes Elsewhere • Hedge Funds -- $2.1 Trillion under management. • Private equity -- $269 Billion raised in 2009. • Venture capital -- $13 Billion raised in 2009.

  5. Why Is This Happening? The Investor Perspective • Returns are better in hedge funds. • Private equity more “predictable” than venture. • Venture Capital suffers from “the Internet Bubble.” The Fund Manager Perspective • Managers make much, much more running hedge funds. • $25 Billion paid to top 25 managers of hedge funds in 2009. • Fee income from private equity is large. • Venture Capital is a long and difficult road.

  6. The Market Is Acting Rationally • Institutional investors chase predictable returns – they have to. • Venture Capital and Angel capital are merely “asset classes.” • Larger VC funds need predictable, shorter term investments to compete. • Smaller VC funds and Angels are better suited to pursue long term returns.

  7. Why Are Venture Returns Lower? • Well, the economy hasn’t been terrific…. • But the larger reason may be found in the relationship between the creation of new technologies and commercialization.

  8. The Relationship of Government R&D to Venture Capital Venture Capital Returns and New Investments Venture Capital New Company New Company New Company Government Funded R&D New Company New Technology Industry

  9. As Technology Industries Mature Profits Decline Returns from a Sustained Competitive Advantage Exploitation Commoditization Launch • New Technology Industry 20 0 10 Time (years)

  10. The End of Venture? • Returns are depressed because certain technology industries are “maturing.” • Venture Capital doesn’t create new industries; it finances their growth.

  11. But Here’s Some Good News • What we have seen through many cycles is that capital will flow to Venture Capital when the returns are there. • We have a long history of new technology industry creation in the US. • If we wait long enough, the current downward cycle in Venture Capital will likely “correct” as new industries emerge.

  12. What Does this Mean for Starting Companies Now? • Bootstrap, bootstrap, bootstrap. • Utilize government grants and programs to promote technology company creation with emerging technologies. • Understand industry your start up is going to operate in – if its in a “mature” industry – favor business plans that get to customers quickly. • Adjust to the reality of the world.

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