TechPulse 360

Speaking at last night’s SDForum VC roundtable town hall meeting on software and Cloud investments, venture capitalists from Morgenthaler and Shasta Ventures spend a bit of time reflecting on their industry which has been hard hit by the downturn.

Here were their most “colorful” comments:

Rebecca Lynn of Morgenthaler Ventures is seeing series A pre-money valuations finally come down to earth

Rebecca Lynn, principal (Internet services, digital media, financial services and software), Morgenthaler Ventures

“The biggest thing that has changed is that pre-money valuation on a series A has come down to earth. Right now, $3-$5 million is completely market for a good series A and you could expect a VC to take 20 to 40 percent [ownership] and I think 30 percent is probably the norm.”

“IPOs are not an option for a little while until some things fundamentally change. The average to an IPO is now 8.3 years, and almost 7 years to an M&A (mergers and acquisitions). And that doesn’t work in venture economics, because it’s still 3 to 5 years before you need to have a liquidity event.”

“To be venture back-able, you’ve got to paint in your picture a way your company could possibly be a billion dollars business or sell for a billion dollars, and have other options on the way down.”

“In this environment, a lot of VCs are moving later stage because they can essentially do a series C at a series A price.”

“Venture money is not right for many businesses. But, it doesn’t mean it’s a bad idea.”

“Right now, probably one of the last places you want to put your money in is Venture [capital].”

“Don’t bring your grey hair adviser in your meeting with venture capitalists, never. Ever!”

Evan Liang of Shasta Ventures sees a more smaller venture capital industry

Evan Liang, senior associate (Consumer Internet, Software), Shasta Ventures.

“The venture capital industry is going to be smaller over time. When you look at the amount of fundraising from LPs [or limited partners] and that will be smaller over time as the total pool of dollars get smaller and you should expect smaller rounds [of funding for startups] in the future.”

“You have a lot of venture capitalists that are taking a lot of meetings but it’s almost for entertainment value! And that’s unfortunate for the entrepreneurs.”

“The Angel market has been hit very hard in this downturn”

“Seed stage investing can also be interesting in this environment because if you take a 7  to 8 years exit period, you will be exiting in a hopefully different environment.”

“If we map this downturn with the last one [in 2001], and if optimistically we have a turnaround as quick as the last one because I think this one is worse, 2008 would be compared to 2001 and 2009 would be like 2002. Venture activity was still pretty much dead in 2002 and it was more of 2003 that you saw more of a turnaround and a pick-up in activity. And in an optimistic case, you might look at 2010 before you see things really picking up a bit.”