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February 10, 2005
Two Signs of the Apocalypse
Two related stories are floating around the Internet today. First, we have Mark Anson, chief investment officer at the California Public Employees Retirement System (CalPERS), warning conference attendees in Geneva that "the booming U.S. private equity market could be heading for a crash as interest rates rise and hedge funds, desperately seeking higher returns, pour money into the sector," Reuters says.
Interestingly, Anson didn't mention VC explicitly, though CalPERS' alternative investments program invests in VC funds as well as private equity and hedge funds. Anson fears that too much money in private equity could drive up valuations and deal sizes. As we've noted before, similar concerns have plagued the VC industry in recent years. In fact, we've seen an increase in gargantuan-size VC deals lately, which may be related to the ample supply of VC money out there.
Noticing those deals, Bill Burnham, a VC at Celsius Capital, posted today's second story of note. Burnham researched the history of VC deals of at least $90 million. "The track record for $90M+ VC rounds into software companies is more like a trail of tears," he says. Ironically, Celsius Capital is a new firm that is currently raising its first fund. Add one more pool of cash to the supply.
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