June 30, 2010 – San Diego, Ca — Cabrillo Advisors recently sponsored the International Business Forum’s 21st Annual Venture Capital Investing Conference held at the Palace Hotel in San Francisco. Over 400 professionals from the venture community gathered to address the pressing issues and critical realities facing the industry. Founding General Partners from New Enterprise Associates, Mayfield Funds, Doll Capital Management, Morganthaler Ventures, Crosspoint and Sequoia Capital attended and shared their unique insights on where the venture market is headed.
Additionally, Dick Kramlich, Co-Founder of New Enterprise Associates, received the 2010 Special Achievement Award to recognize his notable contributions to the VC industry, in particular for sponsoring at least eight companies that achieved market capitalizations exceeding $1.0 billion. Past winners of this prestigious award have included the following distinguished venture capitalists: David Morgenthaler, Irwin Federman, John Mumford, Reid Dennis, and William Draper III.
Seven key themes emerged:
Exit markets are thawing: There were nine VC backed IPOs in the first quarter of 2010 as opposed to twelve in 2009 and six in 2008. Mergers and acquisitions activity has picked up substantially. The 111 VC-backed deals in the first quarter greatly outpace the 68 deal per quarter average in 2009, evidence of future promise.
The “Lost Decade”: Returns generated by top quartile firms from the past decade have been below 4% annually. This compares to the average returns over 25 years of 25%+ for top tier firms as reported by NVCA, leading many top VCs to refer to this as the “lost decade” from a performance/returns standpoint.
Venture Capital industry is contracting: The consensus among conference participants was that the number of active Venture Capital firms has contracted by 30-40% from the peak in 2000 and that the number of investment professionals in the industry has contracted by up to 50%.
Fewer companies are getting funded: As a result of the contraction, fewer companies are getting funded. The number of VC deals peaked in 2000 at 8,000 and has decreased to an annualized rate of 2,800 per year currently.
Recessions are good: Returns from funds formed and invested during depressed economic cycles generally have outperformed historic averages. While there are numerous arguments why this trend exists, the two most powerful are: (1) fewer new companies were formed, increasing time and talent pool per deal and (2) VC firms ability to negotiate terms more aggressively.
Reasons for optimism: Steve Jurvetson of DFJ concluded the conference with an eye-opening presentation on the rapidly increasing pace of change and innovation. He argued that Moore’s law of exponential innovation applies across numerous sectors (clean tech, life sciences, etc…). As such, there will be no shortage of breakthroughs in technology and concepts to fuel innovation and the Venture Capital Industry.
What is hot?: Frequently mentioned were: social networking, clean tech, and of course life sciences, but most VCs have an ace up their sleeve they aren’t currently talking about.