Silicon Valley Nation
Silicon Valley Nation: VCs still hate you
Brian Fuller
1/24/2013 1:27 PM EST
In fact, venture capitalists in 2012 didn't have a lot of love for most entrepreneurs: Total money invested fell 11 percent from 2011, while the number of deals fell 6 percent. It was the first time in three years that investment dollars have fallen, according to the PricewaterhouseCoopers MoneyTree report, released recently.
By contrast, when the numbers came in last year, money invested in 2011 was up 26 percent over 2010, and deals were up 9 percent. What brought down the overall numbers in 2012? An escape from biotech (-18 percent to $4.1 billion) and clean tech investments (-28 percent to $3.3 billion). The bright spot was the biggest sector in the report, software, whose $8.2 billion invested dollars were up 9 percent year over year.
Now for the ugly, but not surprising news: Electronics and semiconductors remain VC's ugly ducking. Money spent on electronics and instrumentation fell a whopping 84 percent in 2012 and 46 percent in semiconductors. In 2011, those sectors enjoyed 5 and 29 percent increases increases in investment. Deals in 2012 fell 20 and 29 percent respectively in those sectors, according to the MoneyTree report.
| Sector |
2012 $
invested |
% from
'11 |
| Computers/Peripherals |
$453 million |
-9 |
| Electronics/Instrumentation |
$237 million |
-84 |
| Networking &
Equipment |
$315 million |
-13 |
| Semiconductors |
$920 million |
-46 |
| Telecommunications |
$579 million |
-9 |
But we've known this for a long time. The high point, of course, was 2000, when $3.3 billion was spent on semiconductor startups and $797 million in electronics equipment and instrumentation. In 2012, those numbers were $920 million and $237 million.
So we're down considerably from those peaks, but up significantly from 1995, which you could consider a reasonable year in a historically reasonable era: Just $214 million was invested in semiconductors, $151 million in electronics and instrumentation.
Next: Moving past denial
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EREBUS
1/24/2013 4:04 PM EST
I am not surprised. Fewer than one in ten great ideas ever end up as great products. Since we are experiencing a transition in electronic device use, that makes each technology advancement more risky.
I learned a long time ago that you need to look very carefully at your product/innovation, your projected market, and define the acceptable features list with deliberation.
Many great ideas are just overcome by events before the device can reach maturity. In other cases, the FAD environment for that "type" of product passes, so you have the last great old device.
Venture Capitalists want low risk high payoff/profit devices. There are a lot of different ways to get there, but the VC must be persueded that yours is the one that makes them the money.
When you pitch your idea, make sure that you speak their language. They are not as technically astute as you are, but they know when the numbers work, so show them a low risk path to the pot of gold.
Just my opinion.
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Stefan.Ahlqvist
1/25/2013 7:29 AM EST
If you really do have a low risk to the pot of gold, and could convince other people of this - go to a bank.
VC should be all about medium-to-high risk and large pots of gold.
But I do agree, some VC companies has started to act like banks in their risk portfolio.
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TJones
1/25/2013 2:15 PM EST
Wow, did not realize the Viet Cong were such a hi-tech investment powerhouse!
;-)
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Hughston
1/28/2013 10:41 AM EST
I think part of the reason is increased capital gains taxes. Other reasons are that most semi startups are outside the 5 year investment window that VCs look for and the perceived return on the investment is 10 to 1. VCs are wanting more than that. I wonder how many good semi investment opportunities there really are today?
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BobsUrUncle
1/31/2013 5:09 PM EST
VC are just leeches and fleas on the backs of entrepreneurs. They *will* steal your company. Just ask the founders of Cisco. Use the lean startup model and places like kickstarter to fund your company. If you have a good product, the money will come to you and you can negotiate on your own terms. NEVER loose control of your company. Running a business is not rocket science as Steve Jobs once said.
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jlinstrom
2/4/2013 2:11 PM EST
also look to 'angels' - less pressure to hit a grand-slam, more freedom to innovate and decide, keep more control. Fills the niche between kickstarters and V.C.s
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Honkers
2/13/2013 7:53 PM EST
If there an easy 3 step process to access capital, i would like to know.
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