Looking back at 2004, I get the sense that 2005 will be a year of frenzied deal-making. The stage is set: Most firms completed the distracting fund-raising process last year (see story, page 36), and many firms finally saw long-awaited liquidity events with the resurgence of the IPO market (see story, page 38). And when you factor in the relatively sedate deal-making environment of the past three years (see story, page 28), you get the sense that venture capitalists are ready to break out this year.
What’s less clear is where VCs will put their money. For all the talk about the consumer market, I just don’t see it drawing many new deals. The same goes for China. If I had to pick one sector that will be hot this year, I’d go with the Internet. The sting is off the failed dot-com investments from 1999 and 2000, and the market has matured enough to give VCs a clear indication of business models that really work. Closely watched Sequoia Capital ramped up its Internet investments with nine deals in 2004, and I expect others will follow suit.
So, after years of fretting about portfolio problems, venture capitalists can breathe a sigh of relief. But not for long, lest they lose out on a hot deal.