VC Fund Returns Investors’ Money Blaming Excess Capital And Weak Exits
Is there too much venture money chasing too few good deals globally? The signs are there are. Sevin Rosen Funds, a 25-year-old venture capital firm based in Dallas and Silicon Valley, abandoned its plans to raise its 10th fund just when it was about to get closed. The fund had received commitments from investors for $250 million to $300 million, but decided to drop the plans at the last minute. The firm’s managing partner Steve Dow told in an interview to New York Times, “The traditional venture model seems to us to be broken.”
In a letter sent to the investors, the firm said, “We have decided to take the radical step of returning the commitments you have given us for Fund X.” The firm said that too much money had flooded the venture business and too many companies were being given financing in every conceivable sector. But too much money is not the only issue. The firm blamed the development on “a terribly weak exit environment” too.
Sevin Rosen has invested in companies like Compaq and Lotus. Is Sevin Rosen entirely right in what it’s saying? When Web 2.0 companies like YouTube and Facebook are about to get acquired, is the exit environment that bad?
Sevin Rosen is not shutting shop anyways. It will continue to invest from its earlier funds. Dow says it’s not the end of venture capital business for him. “Maybe there are different financing structures…Maybe we have to look at fund sizes. Maybe we have to look at only doing deals that are going to take a limited amount of capital.”
Read:
A Kink in Venture Capital’s Gold Chain (New York Times)
Sevin Rosen: Venture Capital is Over (Paul Kedrosky)
