Money Sits on Sidelines as Venture Capitalists Recoup.A year ago, venture capitalists Venture Capitalist An investor who provides capital to either start-up ventures or support small companies who wish to expand but do not have access to public funding. Notes: Venture capitalists usually expect higher returns for the additional risks taken. were the rock stars of the New Economy, trafficking millions to startups they hoped would reap billions. Well, the party's over and the hotel room's trashed trashed adj. Slang Drunk or intoxicated. Our Living Language Expressions for intoxication are among those that best showcase the creativity of slang. with dot-com wreckage. Ask VCs today about investing in the latest dot-com startup, and they will echo George Bush Sr.'s famous line: "Wouldn't be prudent." The lesson learned from the investment mania of 2000 is that it's time It's Time was a successful political campaign run by the Australian Labor Party (ALP) under Gough Whitlam at the 1972 election in Australia. Campaigning on the perceived need for change after 23 years of conservative (Liberal Party of Australia) government, Labor put forward a to return to time-honored investment basics. Prudence Prudence five wise virgins brought lamp oil in case groom arrived late. [N.T.: Matthew 25:1–13] jacinth endows owner with discretion. [Gem Symbolism: Kunz, 82] Metis goddess of caution and discretion. [Rom. Myth. is the way to go. "Last year, if you were a startup claiming to offer a service that was faster, cheaper and the first to market, you had a model that many VC firms would throw money at," said Massoud Entekhabi, managing partner with Santa Monica-based TL Ventures. The amount of venture money that was tossed to L.A. businesses climbed from less than $30 million in 1993 to almost $2 billion in the first nine months of 2000 alone. (Fourth-quarter figures are not available yet.) Consider some of the dubious investments during the fourth quarter of 1999. Culver cul·ver n. A dove or pigeon. [Middle English, from Old English culufre, from Vulgar Latin *columbra, from Latin columbula, diminutive of columba, dove.] City-based CarsDirect.com, a site where you can buy cars and get financing information, got $280 million from firms such as Hambrecht & Quist, Goldman Sachs The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: GS) is one of the world's largest global investment banks. Goldman Sachs was founded in 1869, and is headquartered in the Lower Manhattan area of New York City at 85 Broad Street. and others; the company recently dropped its IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. and announced layoffs. BizBuyer.com, a B2B (Business to Business) Refers to one business communicating with or selling to another. See B2B e-commerce, B2C and B2G. B2B - business to business marketplace that closed its doors last month, got $38.5 million from Red-point Ventures and others. eStyle Inc. an operator of B2C-oriented sites, got $25 million from Zone Ventures, Vulcan Ventures and others. Would companies like that get that kind of funding in today's marketplace? No way. "The idea that a company can aggregate eyeballs The number of users. "There are 110 eyeballs" means there are 110 users currently online. See eyeball hang time. and figure out how to monetize them later, which was popular in the (recent past), has gone away," Entekhabi said. Instead of doling out checks to those startups and waiting for an IPO, VCs are returning to traditional, established practices. "They're returning to the obvious and very successful fundamentals," said Rohit Shukla, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of the L.A. Regional Technology Alliance. "The fundamentals are simple and they've never changed: revenue, growth and profit." "Private equity investors are more focused on investing in a business opportunity that has a sustainable, supportable, unfair advantage in the marketplace," Entekhabi said. To meet those criteria, local VC firms will have to acknowledge that innovation is happening globally. "Venture capitalism venture capital n. Money made available for investment in innovative enterprises or research, especially in high technology, in which both the risk of loss and the potential for profit may be considerable. Also called risk capital. has always been local," Shukla said. "The truth of the matter is that, with their extraordinary funds, local VC firms need to find innovation wherever they can find it in the world and bring it into their portfolios." Those companies should also be immune to stock market volatility. "They need to make sure their companies have a revenue and profit base that grows in spite of the stock market, not because of the stock market," Shukla said. This year will also be the year that VC firms return to their expertise. "A lot of firms got caught up in the frenzy of the day and tried to reposition or expand their investment strategies. While a few were successful, a lot of people are going to look back and say, 'Gosh, I wish I hadn't done that,"' Entkabi said. Is money going to be tight for VCs in 2001? "There's a lot of money sitting on the sidelines On the sidelines An investor who decides not to invest due to market uncertainty. on the sidelines Of or relating to investors who, having assessed the market, have decided to avoid committing their funds. right now looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. a home," said Entekhabi. Redpoint raised $1.25 billion for its latest fund, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the firm's managing partner, Brad Jones This article is about the racing driver. For the football goalkeeper, see Bradley Jones. Bradley Jones also known as Brad (born 2 April 1960) is an Australian racing driver formerly competing in the V8 Supercars. . Indeed, no local VC firms are going to go belly up. Unlike many Net startups biting the dust, most VC firms are structured to stay solvent during economic downturns. VC firms usually have 10 years to manage their portfolios before returning money to limited partners -- pension funds, wealthy individuals and institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. . But now that the Net bubble has been pricked, VCs are taking a more sober, long-term approach. "We're in the long-term investing business," Entekhabi said. "If we have short-term swings in the value of our portfolio, we'll still have a good investment in the long run if our underlying criteria are still there." VC firms that were started in the past year by amateurs will face hard times. Without a proven track record, they'll have a tough time raising follow-on rounds, because their portfolios aren't proven. "Not everyone can ever be a venture capitalist," Shulda said. "It requires a special kind of skill. It's way more than just shoving money down a bottomless pit A bottomless pit, as its name implies, is a pit that has no identifiable bottom. Such pits are known by a large variety of names, and are a common hazard in many computer games and video games. ." If there is a buzzword A term that refers to the latest technology or a term that sounds catchy. If not a flash in the pan, new technologies become mainstream. For example, Java was a hot buzzword in the 1990s, but should remain a major topic for decades. in the VC community today, it's infrastructure. "There is more focus now on companies that have unique technology that gives them an advantage," said Redpoint's Jones. "There's a return to analyzing proprietary technology. With that, we will continue to invest, but I think at a little slower pace."
Top L.A. Venture Capital Internet
Investments in 2000
Company Amount Raised Stage Nature of
(Location) (in millions) Funding Business
EConnections Inc. $75 First B2B
(El Monte)
Business.com $61 Third Busienss portal
(Santa Monica)
Internet Connect Inc. $52.6 Fourth B2B Net
(Torrance) solutions
People Support.com $50 Mezzanine Net customer support
(Los Angeles)
BizRate.com $50 Third Comparison shopping
(Marina del Rey) guide and Net research
Xdrive Technology $47 Third Free Net Storage
(Santa Monica) space provider
Need2Buy.com $43 Second B2B
(Westlake Village)
iAm.com $36 Second Net community
(Santa Monica) for artists
PayMyBills.com Inc. $31 Third Personal Web based
(Pasadena) bill management
Sameday.com $20 not categorized B2B
(City of Industry)
Company
(Location) Investors
EConnections Inc. Red Rock Ventures,
(El Monte) Trident Capital and
others
Business.com Financial Times,
(Santa Monica) Cahners and others
Internet Connect Inc. Crosspoint Venture
Partners,
(Torrance) ldealab and others
People Support.com Accel Partners,
(Los Angeles) Benchmark Capital
and others
BizRate.com Attractor Investments,
(Marina del Rey) Mission Ventures and others
Xdrive Technology Goldman Sachs, Wit
(Santa Monica) SoundView and others
Need2Buy.com Rustic Canyon Ventures
(Westlake Village) and others
iAm.com Sierra Ventures, Citicorp
(Santa Monica) Investment Inc. and others
PayMyBills.com Inc. ComVentures,
(Pasadena) E*Trade Group Inc. and
others
Sameday.com Accel Partners and Idealab
(City of Industry)
Source: VentureWire
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