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2010 TiE VC Annual Outlook

Anil Saigal

2009 was a tough year for venture capitalists as only 5 companies nationwide when public, two of which were from Massachusetts. What the future holds was the focus of the sold-out Annual VC Outlook Dinner event hosted by TiE-Boston on January 28th, 2010.
In a new format, Bill Helman, Partner, Greylock Partners gave a dynamic and enlightening keynote talk focusing on Macroeconomics, Venture Capitalists, Difference in East Coast and West Coast Cultures and Liquidity.

“Given what is going on in the world markets, don’t try to predict the macroeconomics but be prepared. Focus on risk management exercises, consider the downside and conduct scenario analysis,” said Helman.

VC is tough business and industry fundamentals are in trouble. According to Helman, “The overall VC industry returns have been pitiful as compared to those of Sensex:  -17% vs. 8% for 1 year; 1% vs. 37% over 3 years; 6% vs. 201% over the past 5 years. In 2009, total invested dropped to $17.7B.”

Everyone agreed that there is difference between the entrepreneurship and investment culture between the east coast and west coast. There is 5 times more capital on the WC as compared to the EC. In general, east cost has done a poor job cultivating first time entrepreneurs. Helman attributes this to the WC culture, their willingness to pursue big ideas, spend big bucks, tolerate bigger risks and willingness to promote big! Ecosystem matters!

Liquidity for VCs remains a challenge. Today M&A is the primary source of liquidity. However what has changed is the age of the company at sale. In 2001, one could expect to sell a company in 2.1 years, today it takes on an average 6-8 years. In addition, one can expect a $50-100M investment to typically return about $250M, far below the 10X expectations.

Helman emphasized that “the key driers for success today, as in the past, continues to be products of strategic importance, size of market opportunity, ability to execute against that opportunity, compelling value proposition, focus on solving real customer problems and capital efficiency.”

An esteemed panel of Venture Capitalists discussed the outlook on venture investments for the year ahead. The panelists consisted of:

Jeff Fagnan, Partner, Atlas Venture   
Jeffrey Glass, Managing Partner, Bain Capital Ventures
Jens Eckstein, Partner, TVM Capital   
Sunil Dhaliwal, Partner , Battery Ventures   
Justin J. Perreault, General Partner, Commonwealth Capital Ventures
Peter Bell, General Partner, Highland Capital Partners

The event was moderated by Rob Weisman from The Boston Globe.
As of result of economic meltdown, everyone agreed that:

-  the markets have stabilized but the sales cycle are longer
-  there is market for big ideas and ideas with differentiation
-  greater importance on capital efficiency
-  more focus on quality of team
-  even though there are huge opportunities in clean tech, it is not clear when one can expect to see returns on the investments
-  technology is maturing but the need for people who can apply the technology and create buzz is greater than ever
- in 2010, the markets for mobile applications and products for energy efficiency and related software should be strong

On one hand the panelists were optimistic but on the other hand it was evident that they were not ready to make new bold predictions for the future as they used to do in the past.

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