The LP′s view of Venture Capital.pptVIP

The LP’s view of Venture Capital Scott Gibson, Gibson Enterprises Foundations: OHSU, OCF LP of OVP, Smart Forest, Sevin Rosen, Crosspoint, NW Capital, Pacific Horizon Agenda Venture Capital as an asset class now Alternatives to VC Implications for venture capital Fees, fund sizes Summary Asset Class-Venture capital Too much money chasing too few quality deals. Money still going to bail out some of portfolio—probably not great return. LP’s see the air is being slowly let out of the portfolio valuation balloon. Many advisors saying VC is very overvalued asset class now (Cambridge and Associates). Risk adjusted return poor Brinson Partners predicts 8.5% net return for private equity over next 3 years versus 23.5% for emerging markets; 15.4% international stocks. GMO forecasts 12.1% return emerging markets Cambridge Associates Current Valuation summary 11/15/02 Overvalued US Venture capital (later stage) US Venture capital (early stage) US$ US Small cap equities US mid cap equities etc. Why poor risk adjusted return if valuations cheap Series A=Series B=Series C valuation No IPO window so clock ticking on IRR Last money in really hurting employee equity ownership as a minimum (time bomb?) MA sector is bottom fisher or debtor in possession oriented Need more reasons? Current state of foundation asset allocation (as of June 30, 02) Implications Under allocated universe of foundations unlikely to add substantially to VC asset class in next 3 years Thought leaders heavily licking their wounds on recent performance which is worse than they may realize. VC will shrink as an asset class over next few years much as it has ebbed and flowed over 30 years. Valuations of Portfolio Some marking to “market”. Tough to do well Some stick with last round valuation. Over values most of portfolio. LP’s see very different values on same company from different VC firms. Cynical LP’s see valuation methodology tied to timeline for raising new fund. Pressure Points on new fun