The timing of the announcement of Google's $1.6 billion acquisition of
YouTube seems just about right when you consider it was just days after one
of the biggest, most successful venture firms in the country, Sevin Rosen
Funds, threw in the towel on a new $300 million fund, declaring that: "The
traditional venture model seems to us to be broken."
Sevin Rosen may be a special case, with the firm never having fully bought
into the Internet revolution, and still smarting from questions of
succession after a quarter
century in business. But for a firm built on core technology investments in
mundane infrastructure such as telecommunications, chips, personal computers
and the like, it must be frustrating to see the only home-run exits being
accomplished by flash-in-the-pan media longshots like YouTube, MySpace and
Skype, that still haven't even fully developed mature revenue models.
That's not to say those companies won't be roaring, long-term successes, but
for an asset class that once was built on the notion that risk-reward meant
a balance between companies that delivered on technology or fell short,
venture capital has become to a large extent more of a gamble on fickle
consumer tastes.
Companies that received the highest valuations in the dot-com era IPO market
were almost by definition those that had the least predictable prospect of
measurable earnings, and in 2001 VC Graybeard Reid Dennis of Institutional
Venture Partners declared: "We have fouled our nest," dismaying that the public
markets would not soon trust venture capitalists. While ever-hopeful of a
return of that trust, venture capitalists have largely learned to live with
that, and carefully nurtured companies to lowered expectations on returns
through trade sales.
But for firms still carefully picking through technology for the next
generation of wireless chips, or breakthrough business processing software,
it must be frustrating to know you are competing with venture capitalists
more attentive to what new media sensation 12-year-olds are talking about on
the playground.
For certain, there are plenty of firms with more stomach for the hard work
it will take to fund tomorrow's tech companies than Sevin Rosen apparently
had. And the best VCs will balance their technology skills with media savvy.
But there's no question that in a narrow sense, Sevin Rosen general partner
Steve Dow was right about the traditional venture model being broken. — Clifford Carlsen
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