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Flight to Quality in VC Land

When Q1 deal data are finalized later this month, they are sure to show a significant slowdown. But that doesn’t tell the whole story.

I met this morning with VC Richard Yen, who told me that his firm, Saban Capital Group, has offered three term sheets so far this year only to be outbid on all three of them. “There’s been a flight to quality,” says Yen, a director in the digital media group of Saban, a Los Angeles-based firm backed by billionaire media mogul Haim Saban. “There are only a few things we’ve gotten excited about, but when we have there have been a lot of people sniffing around,” Yen says.

Saban offered term sheets for a Series A round for a mobile company run by a successful repeat entrepreneur who was seeded by a Sand Hill Road firm; a Series A round for a direct response marketing company (a la Cash4Gold) run by an entrepreneur with 20 years in the direct response business; and a seed round for an entertainment website run by a “high-profile personality.”

The fact that Saban was outbid on all three deals has Yen worried that “there won’t be price resets for those [good deals]. Only a few deals are going to be done, and they’re not going to be cheap.”

This is both good news and bad news for entrepreneurs: It appears that the first-timers with a great idea will continue to get rebuffed by most VCs, while those with successful track records will be able to pick the best deal from multiple offers.