Hand me the Maalox
With a few quick back-of-the-napkin calculations, Rappaport estimates there may be 100 chip startups created over the last decade that investors will need to fold. "The VC industry is going through a period of indigestion," he said.
"There's been more competition for good people and business than there should have been and too much duplication of effort--a lot of that will get washed through the system," he added.
"I wouldn't quibble with Andy's number" of 100 too many chip startups, said Stevens of Sequoia. "It might be 50 or 150, but he's not off by more than that," he said.
|Walden International, Chairman|
Lip-Bu Tan of Walden disagreed. "There are a lot more than 100," he said.
Tan notes that VCs funded a whopping 2,200 companies in the first nine years of this decade, many of them silicon wannabes that will have to be folded.
The likely results over the next three years: Big chip makers will refocus on internal R&D instead of buying their next-generation chips and teams from startups. VCs will concentrate on a smaller number of better chip startups. Talented engineers will migrate to greener pastures.
"Many are going into clean tech and solar companies," said Stevens.
VCs also faces a shakeout, said Rappaport. The 8-10 year contracts signed with limited investment partners back in the twilight of the dotcom boom are coming up for renewal. Or not.
"We've grown to a multiple of what we should be," Rappaport said of the venture sector. "Now the money is drying up suddenly [and] it will be a little bit hard over next ten years to raise funds [until the] numbers come back into balance [so] the number of VC firms and their sizes will decline," he said.
"I think you'll see a lot of change in the VC sector in the next 2-3 years," said Stevens.
"You will see some VC funds break up and others that can't raise money due to poor performance," he added.