Speaking
at the
Argyle
Executive Forum's 2007 Leadership in Venture Capital Conference,
investment veteran Jon Bayless, a general partner at Sevin Rosen Funds, spoke
about the changing state of the venture capital industry.
Citing statistics, he said that the valuations of startups are still at
historically high levels; moreover, the valuations that portfolio companies
are getting in middle- and late-stage rounds are trending upwards, which is a
good sign for early-stage investors like Sevin Rosen.
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He also spoke on the importance of figuring out early if a portfolio company
is building a company or just a product, and letting the entrepreneur know
from Day 1 what to expect the exit to be: a trade sale or an IPO. While
venture capitalists prefer to be in the business of building standalone
enterprises, a company building a product in hopes of a buyout has the
benefits of needing less money in the middle rounds since it won't have to
build out a big infrastructure such as a large sales team.
As for the public markets, Bayless expects the IPO window will remain open,
but added that the time span required to bring a company to the point
where it can go public has widened to around 8 years; leading to a
corresponding increase in the amount of capital venture firms must invest in a
company over the life of the relationship. The longer time span is creating
problems for some VC firms which are working on a 10-year life cycle for their
investment funds. Sevin Rosen is combating the changing environment by
diversifying the industries in which it invests. After more than 25 years of
backing only information technology and communications startups, the
firm's ninth fund now includes life sciences companies, as well as energy and
materials companies.
However, Sevin Rosen remains dedicated to its core strategy of investing in
seed- and early-stage startups. Bayless said that in its ninth fund, over 50%
of the portfolio companies were backed at the seed/incubation level, and
another 25% were initially backed at the first round. —George White
