The VC Echo Boom

I’m seeing so many signs that venture funding is on more than an uptick, especially in the U.S. Companies are receiving multiple term sheets, valuations are blipping upwards, and there is that same sense that I have to get deals done.

Why? Blame two things, and they are closely related. First, many funds were raised in the 1999-2000 timeframe. Those funds will, within a year, have to be fully invested. Partners sat on the funds for the last three years, shell-shocked by the capital markets and by the disasters in their late-1990s portfolios. Now, however, they have to get them invested.

At the same time, while private equity and public equity markets aren’t closely related, there is something about a soaring public equity market that gets all investors juiced. So, blame the current upturn in public equity for the recent re-energized VC market.

The trouble is, people should have been investing two years ago when no-one else wanted to. For all the criticism that NEA, DFJ, and Polaris have received for their prolific pace in the 2002-2003 period, you can’t fault them by saying they’re following the VC pack.