VCs confront the turmoil

The meltdown in public equity valuations is already having upstream effects on VCs, providing opportunities as well as nail-biting challenges depending on how the firms are structured and where they are in their funding cycles.

For VCs able to invest in public equity, this obviously is a great time to go bottom fishing. But the core venture business is more challenging for VCs having to deal with LPs under pressure to rebalance or even cash out of private equity portfolios, as well as how to allocate funds to support existing portfolio companies. And times are hard for VCs trying to raise new funds.

In addition, VCs and private companies doing rounds now could run into a buzz saw of acrimony if no one has learned from the post-genomics bubble period. Back then, new investors commonly crushed early investors and some companies went under not because no one wanted to fund them, but because the bad blood overwhelmed all other considerations (see BioCentury, Feb. 25, 2002 & April 21, 2003).

Rebalancing act

With mainstream U.S. indices down around 35% for the year, the public side of LP portfolios has shrunk substantially. This means that within the next quarter or so many institutional investors will need to rebalance their portfolios among different asset classes.

"We do know that one of the largest investors in venture funds is closely monitoring their allocation," noted Nicholas Galakatos of Clarus

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