For VCs, Time to Get Real –

As the venture capital industry prepares for a difficult economic climate, exacerbated by the terrorist attacks of Sept. 11, VCs face some difficult choices. At the top of that list is what to do with struggling portfolios in a market with few liquidity options?

Keep them going while waiting for the IPO market to reopen or for a resurgence in M&As? Or pull the plug on hopelessly lost companies, no matter how that impacts a firm’s reputation? For the long-term health of the industry, many industry followers are calling for the latter. As this month’s cover story explains, the slowing economy and fallout from the terrorist attacks is forcing VCs to get real.

Also in this issue, VCJ takes its annual look at the compensation issues in the private equity field.

With less-than-stellar fund performance and waning portfolios, it comes as no surprise that general partners at private equity firms won’t be making as much money this year as they did in 2000. Carried interest, which over the past couple years has served as a huge windfall for GPs, is certain to drop given the tough exit market in 2001. Indeed, a slowing economy has put all investors’ compensation in jeopardy.

However, it’s not all bad news. For most private equity professionals below the partner level, compensation has been flat or higher in this year.