VC Investing During A Downturn

Today’s best post is from Fred Wilson and is titled Investing In Thick and ThinOnce again, Fred totally nails it. 

"Our approach is to manage a modest amount of capital (in our case less than $300 million across two active funds) and deploy it at roughly $40 million per year, year in and year out no matter what part of the cycle we are in

That way we’ll be putting out money at the top of the market but also at the bottom of the market and also on the way up and the way down. The valuations we pay will average themselves out and this averaging allows us to invest in the underlying value creation process and not in the market per se"

This is similar to our philosophy at Foundry Group, which is probably not a huge surprise to anyone that knows us.  Fred finishes with:

"As I’ve written here recently, I see no signs that the venture market is drying up. Its changing, for sure, and if you aren’t running a company that’s emerging as a clear winner, its going to be tough to raise money in 2009 from anyone other than your existing investors. And look for them to be more cautious, more diligent, and less generous than they may have been in the past few years.

There’s money out there in venture land and its going to get invested in 2009 and its going to get invested wisely for the most part. At least that’s our plan and I’m confident we can execute on it."

Absolutely worth a read from beginning to end.

  • One of the things that many VC's and entrepreneurs have started talking about is how this current crisis will change the VC funding model for the future. Basically, how will VC's evolve to not only emerge from the crisis, but also prevent yet another one from developing in the future? I think we can all agree much of the tech bubble rested on the shoulders of VC's, whereas, this crisis affects almost every sector, every consumer, every investor, etc. But, I don't think the question of whether or not VC is a 'dead canary' as Adeo Ressi of The Funded argued (and which a lot of discussion was created on my blog) is answered yet. Personally, I don't think saying VC funding is dead is accurate, but I do think things will change. A basic value investing approach of increasing funding opportunities during a downturn won't prevail in this crisis, or at least I don't think it will.

    -Mark ( ” target=”_blank”>