Three VCs Weigh In On Incubators, The Late Stage Bubble And Big Data
The venture industry is going through several transformations at once, so advice from experienced practitioners is worth the listen.
That’s why I tuned in Tuesday morning as Hummer Winblad Venture Partners Managing Director Ann Winblad, Bridgescale Partners Managing Director Rob Chaplinsky and U.S. Venture Partners General Partner Paul Matteucci took the stage at the AlwaysOn Venture Summit Silicon Valley.
Quite clearly, venture has countervailing trends acting on it. Money from limited partners is scarce, but technical innovation is thriving. Incubators bring more companies into the entrepreneurial fold, but venture capitalists shift to later stage deal making to seek quick returns.
With trends as these, making bets it difficult. That’s why you see one investor buying into Twitter at an $8 billion valuation and another selling. Here is what three GPs had to say about today’s flummoxing landscape:
On Incubators
Many VCs have yet to figure out how to respond to the rapid rise of seed stage incubators. Others welcome them as a new source of deal flow. One investor on the deal flow side is Winblad (pictured).
“We love all the incubators,” she told the summit audience. “They bring more and more entrepreneurs to the table.”
Think of the incubators as big funnels channeling streams of companies toward a narrowing mouth, where VCs examine them as they flow by. The industry does seem to have an incubator bubble, concedes Winblad, but the benefit is GPs see a lot of companies often further along in their development than in the past.
With a limited number of Series As available, one big question is whether companies that don’t get Series As will be able to grow on their own, she said.
Countering this faster start in life is the reality that portfolio companies now take longer to go from conception to exit. This has many limited partners nervous about returns.
“We’re seeing a lot longer times to liquidity,” acknowledges Matteucci, and that means “patience and staying power are very important.”
The question is whether LPs will wait. Some LPs are in the asset class, and some are not, concedes Winblad.
The Late Stage Bubble
Early stage funds have at the same time been shifting resources to late stage investing to generate quick returns. But the returns won’t be good, says Chaplinsky.
That’s because “we’re absolutely in a late stage bubble,” he notes. And it is a bubble that will burst.
The unintended consequence has been to make investors afraid of the extra risk of Series A and Series B rounds at a time when early stage innovation continues at full speed and early stage risk might be appropriate.
Over the next five years or more, “I think we’re going to see entirely new fields” of investing pop up, says Matteucci. One field may be applying technology to agriculture.
Other promising more immediate areas of investment include analytical tools for large data sets, the use of device location technologies and adding computing power to new devices, such as those used in health care
There will be billion dollar outcomes leveraging data, agrees Winblad.
Related posts:
- Greylock Makes It Official, Roughly Doubles Fund to Chase Late-Stage Deals
- All Your Late Stage Valuations Are About to Suck
- VCJ Explores What Incubators Are Doing in Droves: Hatching Startups
- It Was a Very Good Year (Especially If You’re a Late-Stage VC)
- VCJ Straw Poll: What’s Your Take on the Proliferation of Incubators?
