VCs big on small investments

By Michal Lev-Ram

HALF MOON BAY, Calif. – The next big thing in venture capital is small investments, according to a panel of Silicon Valley investors who appeared at Fortune’s Brainstorm Tech conference on Tuesday.

“There’s no IPO market to speak of right now, big companies like Google (GOOG) and Microsoft (MSFT) are doing far fewer deals than in previous years, so where are the exits coming from?” asked Adam Lashinsky, Fortune senior writer and the panel’s moderator.

The answer, said venture capitalists like Dana Settle, a partner with Greycroft Partners, is investing in companies that don’t require much capital to get going – and therefore don’t require investors to hold out for large-scale acquisitions.

“It’s a different game now – we’re not looking at companies that require $20 million anymore,” said Settle. “But there are big opportunities for smaller funds, and there are a ton of companies that just don’t need that much capital.”

Andrew Braccia from Accel Partners – an early investor in social networking company Facebook – added that the key to investing in a down economy is to find companies that are sustainable.

“These are companies that can stand on their own regardless of the market,” said Braccia.

While Danny Rimer, a partner with Index Ventures, agreed that the IPO market is dead, he also said that there are other ways to make an exit.

“If you build a company with value you will find an exit,” said Rimer, whose firm sold four companies since the beginning of this year, including an Oslo-based startup called Trolltech, acquired by Nokia in June.

“At some point the clouds have to part and there will be a rationale for an IPO market again,” said David Siminoff, a general partner with venture capital firm Venrock.

But the near future may not be all that bright for some.

“At least from the perspective of media [companies], it doesn’t look good for many years,” said Quincy Smith, CEO of CBS Interactive (CBS), which just closed a $1.8 billion acquisition of online media company CNET.

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I am one of those early stage companies perfect for this article. http://www.MyOnlineToolbox.com has already raised a good amount of capital from angel investors (in 3 states and 2 foreign countries); has a product that just started selling and also won a DELL TOP 10 INNOVATION AWARD. Unfortunately we do not need many millions to get to the next level and welcome a very strong early stage VC to the table. To answer David’s question: most sophisticated investors (angels + VCs) come to the table with a lot more than money. My instinct is that you think you are already wealthy becuase you have a good idea. To answer Wayne’s statement: people invest all the time if there is an opportunity, whether in good times or bad. For example, my product targets home repair and remodeling which is getting a kick start simply becuase the new construction market is getting slammed. I am active in this space, so just type in the company name or my name to find out more details. We welcome the call.

Posted By Brian Javeline, Pompano Beach, FL : August 15, 2008 3:16 pm

Tell me, why would someone with a great idea and product look for a Venture Capital group with just a little chunck of money. Maybe they were born yesturday? Just coming to the party with a pocket full on money doesn’t get the savy motivated to talk.

Posted By David Bristol, Bozeman, MT : July 29, 2008 12:30 am

I’m here in San Francisco, looking to raise some seed capital. The buzz I hear from my funded friends, VC’s are just not investing much right now Large or small.

Posted By Wayne Lambright, San Francisco, CA : July 22, 2008 9:17 pm

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