I spoke with Bob Ackerman, managing director of Allegis Capital and a veteran Silicon Valley venture capitalist about some of the trends and issues in VC. He spoke about his concerns about the secondary market, and that innovation in the US is being constrained by bad regulations, taxation, and poor education.
Here are some notes from our conversation:
- I have nothing against the secondary market because it addresses a need for liquidity and markets always create a solution to a problem. But in the case of Facebook I wonder if investors are being adequately disclosed. When you can raise as much as $1.5 billion in the secondary market how is that different from an IPO?
- I think secondary markets play an important role but I'm concerned that excesses in this market will attract regulations that can be over-kill. That's what I'm afraid of, that the regulatory response will be extreme and draconian.
- In our investments we think there is room for teams to take some money out, especially if they have been working together for many years and they need some money for a mortgage or college. But I do wonder if you let people in and out what that does for the cohesion of the team.
- My predictions for 2011 are that we will see a modest improvement in IPOs and also more M&A activity. The rise in IPOs should strengthen M&A valuations.
- Some startups have been selling themselves too early but that's partly because of the liquidity issues and founders have been forced to take what they can get. But as IPOs increase so will startup valuations.
- IT security is key, especially with cloud computing. Security in the cloud will be very important because you don't know where your cycles are. In the old days the cloud was called the mainframe and it sat in a secure facility and you connected through a proprietary network. Today you don't have those same assurances with the cloud.
- Cloud will be big this year and a big buzzword and that worries me because there will likely be too many companies funded that shouldn't be.
- Storage is another hot area simply because of the massive amount of data being created daily and the need to make it available online and searchable.
- Social networks are overdone and over invested. There have been too many companies funded with little differentiation.
- All the fuss over angels and super angels is a tempest in a tea pot. We have seen these cycles in VC many times. There is no difference between traditional VCs and "super angels" -- we have the same goals.
- Long term I worry if the incentives are there for people to spend many years building companies. I worry about the alignment of risk and reward for entrepreneurs.
- I also worry about the US. We have a tax and regulatory environment, combined with poor education, that doesn't make the US a good place for innovation. Innovation will happen but will it happen in the US?