2010 Venture Capital Oscar Predictions

Even though Oscar buzz is not yet in the air, it is pretty clear what film titles will rule in 2010. So sit back, grab your popcorn…the envelopes please.

Precious: The statuette goes to this film about the Greenback, which continues to be really hard to come by. The venture industry weathered a swift-yet-painful contraction in 2009, which shows little sign of letting up. In 2008, the U.S. venture capital industry raised nearly $30 billion; although the 2009 data are yet to be compiled, it appears that last year the industry will have raised less than $15 billion—which may be the new annual reality. For entrepreneurs, this contraction will continue to make capital precious and hard to access.

New England-based companies raised nearly $3 billion in 2008; my guess is that this number will look closer to $2 billion in 2009. The New England Venture Capital Association, which I currently chair, had 138 dues-paying members two years ago; right now, we have 108 members. Fortunately for New England, more than 20 percent of all venture capital is managed by firms based in Massachusetts.

It’s Complicated: The star of this film: the local business environment, which will continue to be tricky to navigate. While there is abundant innovation and a number of high-quality entrepreneurs in the market, it is hard to handicap which compelling and profitable investment themes will emerge. Last year investors thought 2009 was going to be the “year of cleantech,” but instead of (global) warming, that investment theme seemed to have cooled. I continue to see great opportunities in the convergence of the IT and life sciences sectors, which New England is uniquely positioned to exploit. There are also wonderful opportunities in cloud computing and with new advertising technologies, but all of this is complicated by the absolute dearth of liquidity.

2012: And the Academy is pleased to recognize this blockbuster, which unfortunately may portend that the real economic recovery is still a few years away. All of us are desperate for predictable, sustainable, and meaningful liquidity. Many of our portfolio companies are at a point of maturity, where in more normal times they would either go public or be sold at attractive M&A prices. Average holding periods have extended to more than eight years, which is unprecedented; normally VC’s expect this to be between four and six years. There will be around a dozen venture-backed IPOs in 2009; this would be closer to 100 in more normal years.

And honorable mentions go to….

In the Air: This flick recognizes that all of us will have to work much harder this upcoming year just to stay in place!

Blind Side: Although this title better describes how we all felt (blind-sided, to be more exact) in the fall of 2008, we should expect that there well may be additional economic shocks as we collectively crawl out of this turmoil.


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3 responses to “2010 Venture Capital Oscar Predictions

  1. Good post, I quoted liberally from it in my own blog. I suspect we have very different readers and I thought mine would appreciate your data and your thoughts. The address above for website is actually the address of my blog post on this topic. Feel free to add a comment if you so desire.

  2. Michael, nice post. Clearly shows the difficulty that exists in the venture community right now.

    I’m looking forward to hearing tonight’s panel at the IERG event. See you there.


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