Venture Capitalists Are Pumping up the Volume: Good News and Not-So-Good News
Venture capitalists invested $25.5 billion in 2006, marking the industry’s biggest burst of dealmaking since the dot-com bust clogged the financial spigot for entrepreneurs five years ago.
As I noted in the first part of a two-parter on SarBox on December 26 (content not covered in the linked article), almost all venture-funded companies are not aiming to go public, but instead are hoping to be bought out by larger companies or buyout firms. The downside to this (because the going-public exit strategy is usually more lucrative) is that entrepreneurs are either not getting as much money as they “need” to do the deal right, or are giving up more control than they might have if going public were a more viable option (or a combination of both). The upside is that if they don’t go public and there is a flame-out reminiscent of 2000-2001, at least the general investing public won’t get burned as it did in the dot-com bubble.
Another downside is that the big-company fish often don’t handle the feisty small-company minnows they take on very well. Many smaller companies would grow faster, be more innovative, and change the economy much more for the better if they went public and stayed independent of big-company bureaucratic influences. To quote something I wrote in the second part of that December 26 SarBox post:
Imagine this — How different (i.e., NOT better) would the world be today if Apple’s or Microsoft’s exit strategy in the early 1980s had been to be acquired by IBM? What kind of computer would you be looking at (or would you even BE looking at one)? Or what if Yahoo’s founders or Amazon’s Jeff Bezos had planned only to sell out to Microsoft (Or even Wal-Mart or Home Depot to Sears or K-Mart?)?
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UPDATE: The news about Ohio’s venture funding is not so good.
