Tags: venture | capital

Venture Capitalists Now an Endangered Species

Monday, 08 Jun 2009 03:23 PM

By Gene J. Koprowski

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Are venture capitalists about to join the Big Three automakers on the economic endangered species list?

There has been a mass exodus of senior partners and advisors from VC firms, the likes of which have not been seen since the dot-com bust in 2000, reports The Wall Street Journal.

Since end of 2007, the number of venture-capital principals, those who make investment decisions and are directors of start-up companies, has fallen 15 percent, according to the National Venture Capital Association.

Recession ravaged firms are dumping partners, and associates, to save their own capital. Many are themselves having trouble raising money to invest. As of the end of last year, there were 7,497 venture-capital principals, down from 8,892 a year earlier.

The number of active venture-capital firms fell 13 percent to 882 from 1,019 in 2007, according to the NVCA.

The change is somewhat startling. For most of the Bush era, venture-capital firms took in reams of cash from investors, spawning a frenzy of start-ups from online advertising to clean technology.

But few of those investments have led to major paydays during the past few years. VCs have been hurt by the falloff in initial public offerings and acquisition volume. Venture-capital funds sank $29.7 billion into start-ups in 2008, but they produced just $24.9 billion from IPOs and the sale of start-up firms last year, according to VentureSource.

Venture-capital funds are typically 10-year investment vehicles. Some firms say the shuffle is just part of the industry's evolution.

Others wonder if the entire economic elite in the U.S. economy is in shock because of unprecedented events, like President Obama's interference in the private property rights of bondholders, like the owners of GM and Chrysler, and is heading for greener pastures.

Technology firm Symantec has even developed a "calculator" to enable investors to calculate the worth of their black market investments during this troubled era.

No one knows when the uncertainty will end and stability will return to private property rights.

"Remember: In December, Congress specifically declined to enact legislation authorizing the president to bail out the auto industry — let alone to purchase an auto company. What law now gives Obama authority to buy General Motors?" writes conservative commentator Terry Jeffrey on CNS News.

"The White House says, when pressed, it is the Troubled Asset Relief Program. But that legislation was written specifically to allow the Treasury Department to purchase assets from 'financial institutions.' It says nothing about buying auto companies. And if Congress has not enacted a law authorizing the president to take ownership of an auto company, who will say when he must surrender it?"

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