Gigaom has a story with numbers that VC investments are flat. It’s true the VCs are in a slump. I wrote on July 1 about VCs problems and opportunities.
Then I wrote.. The big problem is lack of liquidity. My last company was venture backed in Silicon Valley. When there is no capital markets both on the public and M&A side I can tell you that things get crazy.
Most VCs don’t know what to do with portfolio companies after 3 years (even when they are performing ok) Their model is 3-5 year horizon. I would argue with the new environment that their investment time horizon is now limited to 3 years. If there is no exit after 3 years the number of investments a partner makes starts to backup – what I call “portfolio gridlock’. This means that they get “deal backlog’.
A venture partner is like a sales rep – they need new deals in their pipeline and to get the old ones out. No human can be on 9+ boards and be effective. So VC need to get rid of their old companies and make way for the new. It’s a problem screaming for a solution.