Finance: Are technology VCs coming back? (Part 1)

image money small After quite a few years of dull runs since the 2000 IT bubble burst and together with it many hopes and portfolios of high flying Venture Capital firms in Silicon Valley, it seems they getting back again into full swing.

While many of the smaller VCs still struggling to get new funds in, last week’s successful placement of a new USD 650 Million fund by Andreessen Horowitz, basically tripling their capital for investment, speaks a different language.

With nearly zero return on treasuries, negative yields on TIPS and very low coupons on newly emitted corporate bonds, the huge increase of capital available through Quantitative Easing and money presses running non stop around the globe, more and more capital seems to seek investments that provide income beyond such meager returns. Private Equity and Venture Capital funds have demonstrated this in the past.

Investors putting money into Private Equity or Venture Capital funds that are considered an illiquid asset class, do certainly believe that holdings in companies even within the less mature ones VCs normally invest into will provide (more) tangible assets for their money than by investing into such companies via the stock markets which in the U.S. have endured an constant outflow of retail investors funds over the last year.

And the battle for investments between VC funds looks like heating up again (like it’s 1999 ???) when following the bidding war of various VC funds over a 6 month old small New York start-up called GroupMe that Khosla “won” during the last days by valuating it at a hefty USD 35 million.

There are nevertheless many changes since the 2000s – particularly for VCs investing into technology start-ups.

First with cloud services from Amazon and alike many start-ups can today start getting money in by bootstrapping and running up a few thousand dollar bills against their credit cards vs. seeking a few hundred thousand dollars as seed investment from a VC.

Then the market has gone far more global from Silicon Valley and Europe out to India, China, Brazil and other emerging markets. While Kleiner Perkins (KPCB) or Sequoia, to name only two of the established big players, both went out and opened shop in China and India during the last years, also new and strong players from these markets have risen that are now competing on eye level with the “old dogs”.

In a series of articles and interviews we will look into how the VC landscape has changed over the last years (since the 2000 bubble) and will provide an outlook of what we expect might happen next.

Our first article in this series will look into the VC market in India that is expected to grow to about USD 1 Billion next year and we will include an interview with Mr Pravin Khatau who will share his insides into India’s emerging VC industry.

Mr Khatau, a native Indian and a former Executive Director with Goldman Sachs, has a distinguished track record in Venture Capital investing globally and particularly into the Indian markets. He is currently also serving as a Board member of the MVCA in Europe.

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