Venture Capital Outlook – 2012

The annual “Venture Capital Outlook” symposium hosted by Potomac Tech Wire was held on December 16, 2011 in Tyson’s Corner, Virginia.  As usual,, the program was very well attended and offered up a handful of valuable “take-aways”:

1. Innovative Companies.  Investors looking at the D.C. Metropolitan Area are seeing lots of new innovation and great diversity across industry sectors.  Mobile commerce remains a hot area, but look out in 2012 for a rising number of “capital intensive” startups, including companies that specialize in hardware, switching, and data storage.  Look also for continued growth in security, data analytics (including analysis of unstructured data), and telecom infrastructure/switching.

2. Contracting VC Market.  The number of venture capital firms continues to decrease, and the dollars available for investment by those firms is approximately half the amount available 10 years ago.  Among the many causes for this shrinkage are the moderate to bad returns generated in the past decade by VC firms, and a general reallocation of invested funds away from venture investments in response to market downturns and general stock market volatility.

3. Results of Contracted VC Market.  Companies are struggling to get “A” rounds done and it’s perhaps harder than ever to complete “B” or “C” rounds.  Some companies, however, have managed to survive, grow, and even make it as far as an exit event on the back of multiple “seed” rounds.  This latter point is an interesting development indeed, particularly in light of the growing number of “angel alliances” composed of wealthy individuals who pool funds and invest in group (rather than individually) in order to spread the considerable risks of investing in start-ups.

4. How to Succeed.  Given the multitude of similar products in certain industries (for example, mobile apps), the key to success for many companies is having a product that’s distinct and garners quick recognition.  As such, marketing and customer acquisition/retention are now every bit as important as the technology underlying the product in question.

5. Beware of “Crowd Funding.”  Or at least be wary of it.  Crowd funding can be a welcome source of funds in a relatively dry investment environment, but it’s an unpredictable and unreliable spigot in light of ongoing regulatory scrutiny, fickle investor sentiments, and the generally small investment amounts available.  Companies should consider as well the nagging and sometimes serious pitfalls of having a large number of small and virtually anonymous shareholders.

6. Steve Case’s New $450 Million Fund.  AOL co-founders Steve Case, Ted Leonsis, and Donn Davis have raised $450 million for the newly formed Revolution Growth Fund.  Revolution will make investments of $25-50 million in later-stage, consumer-oriented technology companies located mostly on the East Coast.  While this is generally great news, the New York Times noted on December 1, 2011 that this is a “notable shift” for Case, who has until now focused mainly on smaller investments financed from Mr. Case’s personal fortune.  As such, this could be seen as part of a broader movement by the venture capital industry away from investments in emerging growth companies that are so critical to small business growth in the U.S.

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One Response to “Venture Capital Outlook – 2012”

  1. Aaron, thank you for posting these notes from the event. I wanted to attend myself but I couldn’t.