Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

An Arbitrage Opportunity In Early Stage VC Funding

Posted by Tom Foremski - May 14, 2007

VC funding is up but has shifted over to later stage financing:

VCs Invest Record Amounts but Rush Towards The Exits

Charles Beeler, a general partner with El Dorado Ventures writes a long piece on PEHUB, that there are "3 myths and 1 reality about early stage investing."

The 3 myths:

Myth #1
There’s too much money chasing too few deals

I’ve been hearing this one since entering the business in 1996, and know that it was being said long before I came along...

Myth #2
Valuations for venture-backed companies are going through the roof.

Truth is, overall valuations for VC deals are going up. From a trough in the first half of 2003 of $10 million pre-money, the average VC-backed company is now worth $20 million pre-money, a 100% increase...

Myth #3
The “flavor-of-the-month” market is overheated

Pick your favorite market – networking, storage, software, nanotech, cleantech, Internet – and at some point, someone will say it is overheated. Part of our job as VCs is to chase opportunities in what we perceive to be hot markets, so you’re going to see certain markets get flooded with investment when VCs decide it’s the place to be...

 3 Myths and 1 Reality about Early-Stage Investing

The reality is that early stage investing is "not even back to the level of early-stage Internet investing of the first half of 2002." And that was a very bleak time.

Yet Mr Beeler writes that "reports of early-stage VC’s death have, in fact, been exaggerated."

I get where Mr Beeler is heading, but I think it would have been better to write the piece this way:

Strong rebound predicted for early stage VC funding because of the high valuations in later stage funding.

 

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Additional Info:

Charles Beeler is a General Partner with El Dorado Ventures, a Menlo Park-based venture firm that specializes in early-stage technology investing. For more information on visit www.eldorado.com.

 

VCs Invest Record Amounts but Rush Towards The Exits

Foremski's Take: Here's my topline analysis on the VC investment figures just released for Q1 2007. VC funding is up but most of it is crowding into later stage financing. The early stage financing has fallen, which shows that the... [Edit]

Posted by Tom Foremski on April 24, 2007 12:19 AM

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