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July 28, 2006

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Sarah Lacy

In all the "Woo Hoo! More Money!" clamor that arose from VentureOne's second quarter venture capital numbers, there seemed to be a fairly significant oversight: 38% were late stage deals, gobbling up nearly half of all that money.

That's not good.

Historically, 50% of all venture deals were seed or series A deals-- you know the kind that actually started a new--and hopefully innovative-- company? Since the bust that kind of percentage has never returned though. The closest we got was 37% in 2001. This quarter, it was just 33%.

Yeah yeah yeah, I get why it's happening, as this New York Times article nicely details. There's too much money and it has to go somewhere and companies are taking more money to get to an IPO. Doesn't make it any less distressing. Far too many VCs are opting for the less risky route of doubling their money on a company that's already making money, then betting on something new, innovative and potentially disruptive--with potentially a much higher return.

That's managing your business with an eye to the exit. And guess what? Venture capital is supposed to be risky! Is it so naive to think there are investors out there who actually believe all that talk of rolling up their sleeves and building companies? Is it any wonder that 80% of exits are via acquisition and not an IPO with that kind of hedging?

08:45 PM

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