There is an interesting post in VCRatings by The Deal that has a copy of Sevin Rosen's letter to LPs from October of this year. If you don't know already, Sevin Rosen is (was) a storied VC firm in Texas founded by LJ Sevin and Ben Rosen, who established Compaq Computer. Earlier this year, rumors floated that Sevin Rosen who were in the midst of raising their 10th fund, were thinking about giving the money back. Apparently, the returns of recent funds were not that great and the firm was struggling a bit in its identity and strategy.
If you take a look at the letter, you will clearly see that the firm basically admits that it has no clue how to make money in the current environment. It goes on to state some reasons why venture is a tough business including too much money, too few deals, and a poor exit climate.
I am sad to see such a storied firm fold and walk away with its tail between its legs. In my opinion, there is NO BETTER TIME FOR VENTURE CAPITAL THAN NOW. It is clear by this letter that Sevin Rosen simply does not get it!
In this day and age, you can start an amazing business for less than 500k or $1 mm. You can do it for less if you are willing to bootstrap. If you take a look around and can't see opportunities to create great businesses, then perhaps you shouldn't be in the venture business. In that sense, I am glad Sevin Rosen is bowing out because throwing away money on bad deals is not good for the industry.
I believe the current state of venture capital is strong. Rather than too much money and too few deals, I see the main impediment is the empowered entrepreneur who does not want to take venture capital. Most of those entrepreneurs have been successful in their previous startup and want to go it alone. In my opinion, those entrepreneurs can yield greater reward but carry an unnecessary risk.
If you are that individual considering taking venture capital please check out this post for some things you should consider.
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