Gurley predicts 50% VC industry shrinkeage
Benchmark Capital’s Bill Gurley wrote in his Post that we may be on the verge of witnessing a drastic reduction of the venture industry.
Before joining Benchmark in 1999, Gurley was a partner at Hummer Winblad Ventures. As if that is not enough street cred, he has a background as a highly touted research analyst at CS First Boston. So banter of a 50% reduction from Gurley should be taken pretty seriously - considering the full implications for entire sectors of technology that are entirely dependent on venture financing. No wonder that the new mantra being repeated at all start-up events is “cash-flow is king.”
Mind you 50% figure is not a hyperbolic tweet taken out of context, but a very well reasoned analysis showing how pension funds, insurance companies and foundations have lost a lot of money by exposing their portfolios to more venture capital investments. The credit crisis combined with the inability of the venture industry to deliver significant returns from IPOs or blockbuster M&A deals spells - reallocation.
Predicting that institutional investors will likely cut exposure to “alternative assets” by reducing their portfolio allocation by 50%. Logically, Gurley expects a proportional cut in money available to those venture capitalists raising new funds.
This very much mirrors the comments from my contacts in the venture industry - trouble has hit home with many Estonian and Scandinavian VCs that have been unable to start new funds, or have to settle for unexpectedly small funds.