Is This Market Correction Good For VCs?
For those of you who care about these things, the NASDAQ is down almost 10% from its high in mid-January and every day it seems to go lower. I heard yesterday that the IPO calendar is starting to get shelved. The conventional wisdom would be that this can't be good for VCs.
I beg to differ. The market was overheated in early January. Every company was starting to think about going public. It was like 1999 all over again. It was giving me nightmares.
This correction is good for the venture business. It takes the froth out of the market. Froth is never good. I have no idea how low we have to go before the NASDAQ will bottom and and we'll have a bull market back again, but I suspect it will keep going lower until the supply that's planned to hit the market starts getting cut back.
Good information. The latest IPO Update newsletter (a weekly newsletter about current and future IPOs) signals 5 or 6 IPOs in the last week, the highest number in over 1 year (for nearly one year, the newsletter was nearly empty), and about 10 filings.
The market doesn't need another bubble that's for sure. I think VCs and shareholders are trying to get those companies public because they see a tiny window of opportunity and want to profit for it, before it closes for another year. After all, it's an exit strategy they're looking for...
Posted by: Giordano Contestabile | March 23, 2004 at 11:05 AM
The correction is definitely good for VCs...for all the reasons you argue above. More important, thought, the correction is great for entrepreneurs. The LAST thing we need right now is another hype-driven bubble. I never want to live through that again in my life. Moreover, neither should anyone looking to create a new company...do any of us think that taking our off the execution ball to watch stock prices again is a good thing?
Posted by: Jerry | March 23, 2004 at 11:50 AM
This might be of interest...from MarketWatch.
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Venture capitalists who've enjoyed the stock market gains last year are increasingly amenable to paying small fortunes to entrepreneurs with good ideas.
Yes, it's a good time to be an entrepreneur, even if your business plan is written on a flimsy piece of paper.
Here's why. Venture capitalists are faced with an abundance of capital raised in 1999 and 2000 that have to be spent in the next couple of years.
http://www.marketwatch.com/news/story.asp?guid=%7BFF487820%2DD892%2D433A%2DB6A2%2DB0C7787D927E%7D&siteid=yhoo
Posted by: Chevsky | March 23, 2004 at 02:32 PM
Yes, I agree with that, but VCs are surely become more cautious after burning themselves last time around.
Take my example: I'm at my second start-up.
First time around (late 2000): flimsy business plan, no discernible product: fundings in 4 months.
This time around: exceptional business plan, a product that's been built and tested: 2 years to get fundings (coming in two weeks. Yeah!), and we're only here because we raised money from angel investors to build the product.
I'm not complaining, mind you... natural selection is good, and if they believe in the product this time, it means it has good chance of working!
Posted by: Giordano Contestabile | March 24, 2004 at 04:34 AM
Well, it sounds like there's some kind of self-correcting mechanism going on. Dotcom didn't have one. Correction: yes it did- it had one, but only one i.e. Total Market Collapse. Talk about hitting a wee nail with a sledgehammer.
Posted by: hugh macleod | March 24, 2004 at 08:01 PM
When you start to hear things like "the IPO calendar is starting to get shelved," that's often a sign to start looking to buy again.
Not determinitive, but definitely an interesting contrary indicator of early panic.
This week certainly confirmed that, and there were plenty of signs in advance . . .
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