Smokey Rooms…

Thought I would share some of the discussion topics at the most recent director’s meeting for the National Venture Capital Association (NVCA) which was held in Washington, DC. Due in part to the venue, but also because of all of the very significant policy and regulatory issues swirling around the venture capital industry, many of the topics centered on the state of the VC landscape.

Suffice it to say the mood of the discussion was sobering and pointed to some very turbulent times ahead – for both the general economy and the VC industry specifically. In no particular order here are some of the key issues we covered.

  • General consensus was that the “Gang of 12” or “Super Committee” meeting in Washington the past few weeks to hammer out budget and tax reforms will essentially fail. As is increasingly likely given the news over the last few days it appears there will not be a compromise and that the “forced cuts” will go into effect.
  • A lot of hand wringing about the horrible state of VC fundraising. The most recent quarter results were a quarterly low point for the prior eight years (and yet the industry continues to invest at a $25-$30BN pace – that isn’t going to last and frankly probably ends badly). My personal guess is that the VC industry will struggle to raise $15BN this year – and much of that will be by less than a dozen or so firms.
  • Considerable discussion around how the NVCA might help fix the broken IPO process. We developed the idea of an “on ramp” for companies below a certain size threshold, say $1BN in revenues, to transition to being fully compliant with regulations governing public companies. The NVCA will continue to push hard on this agenda item.
  • Solyndra – agreed that we are probably past the half life of this story but unfortunately there are some in DC who will continue to flog this story for political gains. It appears that this is not a cleantech issue, not a DOE issue, but an Obama issue – and as such may not really go away until the FBI has completed its inquiry. Notably 42 companies were loan recipients and only 8 of them were VC-backed (and I am told most are actually doing quite well).
  • Life science industry is in a world of hurt. The medical device sector raised capital in this past quarter at a level of 50% of the one of the lowest levels ever, that being in 2001. There has been a dramatic pullback in funding and rotation to anything that does not come within a country mile of the FDA – life science VC’s most favorite 4-letter word. Soon when bad things happen to you we will say “you were FDA’d…”
  • Lastly we reviewed some fascinating data generated by an LP survey conducted this past summer. It showed that the private pension plans are still quite active investors. Notably of the $100BN raised by VC firms in 2000, only $46BN of that is managed by VC’s firms still in business. My industry is shrinking before our very eyes.

The day ended on a very cool note. Some of us had a chance to visit with senior members of the Federal Reserve. And while the specifics of the discussion are less relevant, I can report that there are very impressive conference rooms at the Fed. There were spectacular posters of every type of US scrip since the start of the country. And you thought entrepreneurs and VC’s have it tough during these times; you would not want to be the good people trying to navigate all these issues in DC.

2 Comments

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2 responses to “Smokey Rooms…

  1. While medical device VC fundraising is indeed in the doldrums, money is still available for medical device entrepreneurs with great business plans (http://jaycaplan.wordpress.com/2011/11/15/healthcare-venture-capital-fundraising-list-2011-q3/). There are tremendous unmet needs in life sciences that can only be solved by the focused efforts of startups. I remain optimistic that more solid exits like Ardian, Spirus, Claros and ZLTQ will bring VC’s and their LP’s back to medical devices.

    • Jay, I certainly hope you are right. We need a collective effort to address all that is wrong in the life science sector. The needs are enormous and will only be solved through innovation. Anything which retards innovation from reaching the marketplace will hurt the quality of life for us all.

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