08:25 AM

VCs Need To Get Back To Roots Says Allegis' Ackerman

VC firms are keeping their powder dry these days and that means very few new ideas are being funded. Bob Ackerman from Allegis Capital was recently on CBS 5 speaking with KPIX reporter Sue Kwon.

A few key points from the interview (thanks to Steve Kaufman):

- Stiff U.S. regulations and tax policy is slamming Silicon Valley VCs. “It’s killing the goose that laid the golden egg,” he said. The evidence is not merely the decline in U.S. fund-raising but the concurrent increase in VC funding offshore – a record $8 billion was invested in Indian and Chinese startups last year. Many of startups that corralled the money were started by entrepreneurs who were educated in America and then worked for U.S. technology companies before returning home. “They are returning to their roots, and the capital is following them,” Ackerman said, adding that this trend is delivering body blows to the traditional wellspring of U.S. technological innovation.

- Even though some of the greatest technology companies, such as Cisco, were created during economic downturns, local VCs have become exceedingly risk-adverse. Ackerman says 75-80 percent of VCs have stopped investing in new startups. Instead, they’re focused on mitigating failures among startups they have already backed and are investing fresh capital only in those they deem most promising. They’re missing the boat because it’s almost impossible to determine which startups will ultimately succeed. One Ackerman-backed startup, IronPort Systems, founded in the middle of the dot.com bust in 2001, was acquired by Cisco in 2001 for $830 million.

- VCs have been spoiled by evolutionary industry trends. This decade, as VC funds grew bigger and bigger, VCs became more hands-off and less hands-on, paying insufficient attention to most of the entrepreneurs they backed. VCs need to return to their roots and work much more closely with entrepreneurs, sharing their successes, failures and experiences to improve the overall possibility of success.

- If these trends are not soon reversed, Silicon Valley will completely lose its waning reputation as the world’s greatest technology innovation center, initially created by the convergence of great universities, a disproportionately large number of local VCs, a strong entrepreneurial culture and the lack of stigma in failure. All this explains why the Valley, at least until recently, consistently attracted so many bright Indian, Chinese, Russian, British and French engineers as the technology haven for the best and brightest. As noted above, this long-standing trend is now in serious jeopardy.

Here's the interview: