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Venture Capital Secondary Market Crisis Looms

What do you get when you extend the idea of the US secondary mortgage crisis into the venture markets?  Ask the 210 dot-com era VC funds that have been struggling to raise new funds since the year 2000.  The VC market is going through it's own financing crisis at the moment, and it smells suspiciously like what's happening in the housing market.  Funds are liquidating portfolio companies at firesale prices, buying LP's out at steep discounts, and adding on new LP's with hugely dilutive new money. Some general partners are even selling their own stakes.

It ain't pretty. Says Kelly Deponte of Probitas Partners, who places some of these funds "Throw these firms a lifeline? I’m more of a mind to shoot the wounded."

{ 1 comment… add one }

  • Frank Miller April 3, 2008, 11:23 am

    While I agree with you that there is a “crisis” in this market, I question its real impact. VC funds are setup on completely different risk profiles than mortgage funds, even subprime funds. Also, I doubt there is the same sort of widespread fraud in the VC funds market that there was in the U.S. housing market.

    My own theory is that the natural maturation of the markets into which these funds were being poured is really the culprit. There just aren’t that many interesting technologies and therefore companies to fund like there were 10 years ago. We don’t have that macro technology driver (i.e. the nascent Web) to cause lots of capital sources to look over and want to do some speculative investments.

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