Notes from a Conference

16 Jun

Last week the 19th annual IBF Venture Capital conference convened in San Francisco. Not surprisingly, some of the bullishness evident at recent conferences was replaced by a more cautious, measured perspective from the attendees and panelists. While I would say there are few “new” ideas to emanate from these affairs, having esteemed colleagues articulate in front of 200 people what you have been noodling with in your head for the past few months helps underscore one’s intuitions about what is occurring in the venture business and how the industry needs to respond.

As is my custom, I like to scribble notes from panel discussions and keynote addresses when I come upon a pithy observation or insight. Rather than prefacing these remarks with context, I am simply presenting them here as uttered, without elaboration. Many speak for themselves and, surprisingly, retain more power when they stand alone, without comment or context.

From an “Investing in a Downturn” panel:

– “Money is a proxy for time, so make damn sure your company has enough cash to make it through the downturn. If a dollar does not absolutely need to be spent, don’t spend it right now. Spend for growth, nothing else”

– “There is always a bull market somewhere. The US market is tough, but the dollar is very weak and international opportunities abound. Have your portfolio companies look abroad for opportunities to sell their products and services.”

– “We are definitely entering a period of longer hold times (for venture investors.) Manage your fund and fundraising accordingly”

– “There is a lot of foreign capital in China, Korea, the UAE and elsewhere looking for a home. They will begin competing with venture investors for venture deals. They already are.”

– “Every portfolio company CEO and every VC needs to take a long-term view now. We must re-emphasize capital efficiencies”

– [For VCs] “Try to work with syndicate partners that will be around to support the portfolio company through the downturn. Work with firms that have a reputation for hanging in there in the tough times. Reputation is key.”

– “Make sure the board and the investors are properly communicating with one another”

– “Make sure the board’s investors are ‘walking the plant floor’ – i.e. they really know what’s going on at the company and who the people are at the company, not just grabbing a sandwich and Coke at the board meetings and not even getting to know the name of the receptionist.”

From an “Early Stage Investing” Panel:

– “This is great time for early stage investors because a lot of what we do has little to do with exogenous factors. Because such factors have little bearing on getting a company to build its first product, the downturn often means less froth, less distraction, less competition for talent and resources, and more time and attention to focus on building a young company”

– “In terms of deal flow, the downturn means fewer entrepreneurs, but better entrepreneurs. The ‘born’ entrepreneurs are still going to launch companies and find good partners; the entrepreneurs that are not as talented or driven will likely stay in their corporate jobs fretting over getting laid off, not trying to launch start-ups.”

– “We are seeing a renewed focus on disruptive business models as opposed to disruptive technologies. An example of a disruptive business model is one where a company is leveraging a spin on a large market that an incumbent can’t accomplish itself without cannibalizing its own business.”

– “Spending cash for eyeballs is totally dead as a business strategy right now”

– “Capital efficiency is tossed around liberally with regards to early stage investing, but it applies to all stages of venture capital, not only early stage.  Great consumer internet companies, in particular, have launched with very little money and developed into powerful businesses. Companies that require a lot of money at the outset may still become great companies, but rarely make good venture investments”

And finally, most sobering of all…

– “VCs need to embrace the current market, not complain about it. They must adjust their investment models to the market. They can’t have it both ways: They can’t complain to their LPs that the market is unattractive and not invest and still expect to collect management fees on capital not being managed.”

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