Outlook ’04: VC PREDICTIONS –

Self-Promotion?
“By the end of 2004, all serious venture investors will have a blog.” Andrew Anker General Partner August Capital

Proceed with Caution “My outlook for 2004 is very similar to my perspective a year ago. The venture capital business will continue to be challenged, given the supply of capital and the far-too-high numbers of companies per technology segment being funded. At the same time, however, there is increasing vibrancy, aggressiveness and thoughtfulness in the industry, and this will lead to the formation of seminal new venture-backed companies.”
Jim Breyer, Accel Partners

Shopping Spree
“The venture capital business is in great shape for 2004 because there will be a nice increase in portfolio company acquisitions and IPOs. For the last three years, public technology companies have focused on earnings and cutting new innovative product development. They now are experiencing a drought in next-generation products, which will absolutely necessitate acquiring venture backed companies.”
Sonja Hoel, Menlo Ventures

It’s All Good!
“Arnold saving California! China booming! Bush in Baghdad at Thanksgiving! Google IPO! Hope and optimism are back! The venture capital business is back to being the great business it always was before the boom. For 2004, I would expect more fundings than last year but still very few exits. Great new technologies will be launched and our lives will change at a faster rate than ever before.”
Tim Draper, Draper Fisher Jurvetson

Return of the Kings
“We’ll see the pendulum swing back in favor of top-tier general partners, who for the first time in several years will be driving allocation decisions within much smaller, oversubscribed funds. So, to LPs who have been down on this business, beware.”
Bryon Sheets, Paul Capital Partners

More Breakups
“You will see a number of venture firms disband for a host of reasons, not the least of which will be an inability to raise a new fund, and you will see the established firms raising much smaller amounts of capital than in the past.”
Adam Schecter, New World Ventures

DOA?
“The question is, is venture capital dead? The answer is no. Venture capital is very much alive for the tried and true performers. There will be three times as much capital raised in 2004 because there are 14 good firms out there looking for capital. This year [2003] fund-raising will hit about $10 billion. That number should hit between $25 billion and $30 billion [in 2004] and we should have a reasonable IPO market.”
Dick Kramlich, New Enterprise Associates

Wireless Dreaming

“Wi-Fi: Access becomes free. Wi-Fi equipment and software companies nosedive. Telecom: Hot again. Large companies will re-enter the M&A market. Social networking: Can you spell over-funded? IPOs: Start happening, but $150 million is the new market cap. VCs realize that they can’t make venture style returns in the new market.”
Bart Schachter, Blueprint Ventures

Goofy for Google
“Google is the next Netscape. Wildly marketed, positively agitating public markets, rising the tide for awhile and making people believe again. At least for awhile.”
Jon Staenberg, Rustic Canyon Ventures

Trolling the Nasdaq
“With the exception of the VCs who were early investors in Google and some of the other big 2004 IPOs, the most money made in venture capital in the coming year will be by those VCs who invest in the public markets through PIPEs, recaps and other kinds of investments in low-priced, undervalued technology, biotechnology and health care companies.”
Dan Burstein, Millennium Technology Ventures Advisors

Catchphrases
“The two favorite sayings for VCs in 2004: ‘We are three quarters away from an economic recovery.’ And, ‘Find a lead and we will invest.'”
William Paiva, Chisholm Private Capital Partners

Growth Hormones
“The U.S. economy will continue to grow robustly. Unlike previous recoveries, the bounce back will remain robust for a considerable time period. Don’t be surprised to see the U.S. economy grow at around 5% for 2004.”
Raj K. Gupta, Gupta Venture Inc.

New Rx
“In 2004, the prescription for investing in life science companies is patients, patience and patents. If you only take two, you won’t feel better in the morning.”
Tracy Lefteroff, PricewaterhouseCoopers

Indi(a)spensible?
“Most Silicon Valley startups will rely on India for offshore engineering.”
Yogen Dalal, Mayfield

Security Problems
“The continued expansion of the Internet’s infrastructure will bring a combination of bubbly exhilaration and scary stories as its fragility – and lack of security – becomes obvious to investors.”
Jacques Vallee, SBV Venture Partners

Back To the 90s
“I’m reminded of a comment on the state of the VC industry: Venture Capital has changed forever, and when the shake-out is over, it won’t return to the good old days.’ That quote was courtesy of the last industry downturn – more than a decade ago. Venture capital in 2004 will see both the upturn of the investment cycle and the industry’s continued evolution. The shake-out is not over, but the investment cycle has reached a trough. Many funds won’t continue, longtime partners will step back, and a new generation of investors will take the reigns. Look for 2004 vintage funds to produce record returns.”
Peter Hebert, Lux Capital

Get Your War On
“VCs will deploy significant capital in the Homeland Security space, particularly in mission critical anti-terror technologies such as bomb detection and through-wall imagining.”
Micah Avni, Jerusalem Global Ventures

Too Much More
“At a time when the forest needs pruning, LPs will put too much money into too many VC firms. And, VCs will put too much capital into technology companies.”
Jon Flint, Polaris Venture Partners

The Nano and the Genome
“The passage of the $3.8 billion National Nanotechnology Bill [in 03] will provide the impetus for a whole new industry for venture capital to fund, just as the funding of the Human Genome Initiative created a biotechnology industry, and the establishment of the World Wide Web fostered the Internet economy.”
Larry Bock, NanoSys/CW Group

Shrinkage
“IPOs will be up in both numbers and dollars raised, and M&A activity will be up significantly, as well, resulting in some good distributions to LPs. But venture capital will shrink – in numbers of funds, in professionals working and in fund sizes (existing and new).”
Sanjay Subhedar, Storm Ventures

He Can Hope
“My hope is that more funds will re-discover’ seed and pre-seed investing so opportunities from nascent firms will have a greater likelihood of going forward. My fear is that the above mentioned funds will try to dictate unrealistic terms, thus destroying the financial incentives of the entrepreneurial team.”
Stan Mandel, Angell Center for Entrepreneurship at Wake Forest University

Wishful Thinking
“If the current valuation inflation continues, everyone will wish they did a lot of Series A deals in 2002 and 2003. At this pace, we’ll see the return of the $30 million pre-money valuation for two guys with a Powerpoint by the second quarter.”
Tim Connors, U.S. Venture Partners

Outsourcing Redux
“The giant sucking sound of labor heading offshore as a result of the shift toward expanded outsourcing at least in part is enabled by the technology innovations that VCs pursued. So maybe we have already figured out the next new new thing’ for 04 – let’s outsource VC to India!
Jay Beaghan, USBX Advisory Services

Pain Relief
“The New Year will be a year of pleasure and pain for the venture capital community. We are finally beginning to see some light in the liquidity tunnel, but for many, fund-raising will prove difficult, as institutions wait for returns and then fly to quality. The flip side of this is that with funds becoming smaller and more selective in terms of the GPs, there may be enough money available if institutions at large remain committed to the asset class. Combine this with increasing investor interest from abroad, and 2004 may prove to be a interesting year all around.”
Roger Novak, Novak Biddle Venture Partners

Red Dragon
“China moves from an emerging to established global power in hardware. China will impact semiconductor, enterprise and carrier systems business models profoundly. Key factors in China’s ascendancy: size of end-market growth, cost leadership, regulatory barriers, and intellectual property protection (lack thereof). UT Starcom, SMIC, ZTE, Legend, and Huawei are just the first wave of powerful China-based global hardware players.”
Chris J. Albinson, JPMorgan Partners

Transformation “As commercial activity accelerates in ’04, later-stage investors who crammed down early-stage investors and employees in ’02-’03 will feel tremendous pangs of remorse and give them back their equity, ushering in a new age of kinder, gentler VC.”
Andy Garman, New Venture Partners

Return of Exuberance?
“With the economy coming around, VC investors are awakening from their long slumber. With all the billions raised during the bubble and burning holes in some pockets, will the VC community learn from the bubble or will it get irrationally exuberant’ again?”
Brad Silverberg, Ignition Partners

Oops!
“Social networking will crash and burn. VCs’ refrain will be: What were we thinking?'”
Nari Kannan, Ajira

Much Better Prices
“We expect that the number of exits of VC portfolio companies via M&A will increase in 2004 as strategic buyers with significant amounts of cash become more active than in the recent past. We further expect that valuation ranges for quality companies will increase from [a range of] $100 million to $250 million … to [a range of] $250 million to $500 million. This heightened level of M&A activity, coupled with an anticipated growth in the number of IPOs, will accelerate the level of distributions to limited partners in [04].”
Rene Biner, Partners Group, USA

Sit Down, Dr. Phil
“Look for companies to address the nation’s most serious, costly and preventable health care epidemic – obesity. Forget Drs. Phil and Atkins. Investors in products aimed at measuring, monitoring and remedying America’s swelling girth will be the big winners in the 2004 Battle of the Bulge.”
Charles P. Rothstein, Beringea

More China Syndrome
“There will be more $1B+ IPOs of Chinese technology companies than U.S. technology companies.”
Larry Cheng, Battery Ventures