Markets are recovering, but should VC’s be bold
August 16, 2011 Leave a comment
I enjoyed this post last week that reflected on how relevant stock markets are to VC investors. A few notable angels could be heard claiming that stock market behaviour isn’t relevant, but given their reliance on later stage investors that’s hardly an impartial view. My view is that there is no doubt that they are relevant. Later stage financings will have keener pricing as a result of any deterioration in the exit market and that will need to be factored into the financing path as it is traced backwards.
The antidote to this impact is disruptive potential. A truly disruptive company can drive acquirers to pay prices that are “strategic” – in other words abnormal multiples that can’t be justified on a comparable market basis. By virtue of the fact that these multiples are in any event disconnected from the stock market – the closer you can get to these types of opportunities in the next few years the better.
The problem for European VC’s is that they are, on the whole, undercapitalised. The impact of this tends to be a lack of daring, more cautious investing in difficult times and taking money off the table early. Perhaps, though, the answer is the opposite, be bold, find yourselves some smart VC’s that you can team up with, and help create disruptive companies.
If there is anything that this era of serial debt crisis has taught us, it’s that the solution that offers the least resistance is often not the best.