Too Little Funds and Nowhere to Go
Saving the Venture Capital Market
With the National Venture Capital Association (NVCA) releasing their report on their predictions for venture capital in 2009, some key points resonate with the driving forces behind gTrade.
The first point is the most obvious one – capital in drying up…. fast!
“While 96 percent of VCs predict that more venture firms will not be able to raise money in 2009, a lower percentage, 85 percent of respondents, believe institutional investors will reduce commitments to venture capital asset class.”
96% is a significant portion of the VC market. This will result in a significant reduction in the number of investments being raised, and as a consequence the Web 2.0 engine of social sites will almost certainly grind to a halt. This is where gTrade is targeting to help by raising capital from investors who have lost trust in traditional markets and would like to share their wealth with these emerging businesses with a vision of a nice return if the company succeeds.
The NVCA article goes on to say:
“While many existing institutional investors are struggling with their allocations and future investment decisions, we will see new limited partners, many from overseas, enter the U.S. venture capital industry, said Heesen. “Despite the fodder, we do not anticipate massive failures of limited partners to make capital calls. Many will sell their positions on the secondary market out of necessity. Yet, that will just change
the mix and allow other institutional investors access to funds they could not access in prior cycles. High quality venture firms will be adequately funded going forward.”
Perfect – gTrade is designed to allow institutional investors and regular investors (you & me) connect with the businesses that need the startup funds. We are then able to use our collective knowledge to value and assess the likelihood of success for these startups, and support then financially and morally.
The larger and more critical issue as I see it, is the liquidity issue with current and future VC funding – which simply doesn’t exist. “An overwhelming number of venture capitalists (72 percent) do not expect the IPO market to re-open for portfolio companies until 2010 or beyond. A more optimistic 18 percent see the market opening in the fourth quarter of 2009. While venture-backed acquisition volume is expected by 57 percent of venture capitalists to remain the same or increase, 87 percent of respondents predict that acquisition transaction value will decline.”
With exits getting more and more difficult, so in turn does entry. The capital that would otherwise cycle around the VC market from matured startup to emerging startup is just not happening. We at gTrade are addressing this issue directly – there is no need to exit the market. By trading in a free market, there is no need or requirement to exit immediately – institutional investors and regular investors alike can exit and enter investment as they see fit.
So as you can see gTrade has been predicting for some time now what the NVCA is now predicting for 2009 and beyond – it feels good to finally have some support from a large industry body. We are hoping this will be the catalyst for existing, and maybe is some way monolithic, venture capital funds to come to the party – the gTrade party – for the new way to raise and trade venture capital. This may just be the saving grace for the current VC market.
