Greentechmedia recently interviewed venture capitalist Ullas Naik, a partner at Palo Alto-based Globespan Capital Partners, for his thoughts on the current VC environment.
One big challenge facing VCs right now is generating liquidity through IPOs. “The VC model is predicated on the existence of a healthy IPO market,” Naik said. VC firms need a few companies from each of their funds to generate healthy 10x returns in order to boost the overall return from their funds and keep investors happy.
But economic conditions in the past two years have sucked the life out of the IPO market. Additional regulations such as Sarbanes-Oxley haven’t helped, either. Naik also feels the venture capital asset class as a whole is overcapitalized, and will have to shrink a bit to be more successful.
As a result, IPOs have all but dried up, and this lack of liquidity has made it difficult for venture capitalists to both raise new funds and to generate the kind of returns that investors became used to in the 1990s. Good VC firms are still building good companies. They just can’t access additional growth capital as easily to take those companies to the next level.
One bright spot is the growing “ecosystem” of greentech companies. The incumbents right now are building the kind of network of successful companies that will one day be big enough to acquire newer, smaller, start-up greentech companies for new technologies, similar to what took place in the IT/computing world. That’s still a couple of years away, Naik says, but it may one day be a key driver of innovation in the greentech industry.
Do you see any improvement in the environment for IPOs? Do you see venture capital as an asset class shrinking in the years ahead? Add your comments below.
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