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.

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