Venture Capitalists Get Tough

(Feb. 18, 2009) PALM SPRINGS, CALIF.: Steve Weinstein called some of his venture cap buddies before leaving for this year’s Hollywood Post Alliance retreat in the high desert.

“They said, ‘we don’t invest in post. We barely invest in content,’” said Weinstein, president and CEO of MobieLabs, a nonprofit research venture in Palo Alto, Calif. Weinstein summarized the state of VC investment for the nearly 400 executives attending the annual retreat.

Essentially, investments fell and conditions tightened.

The VC industry raised $31 billion last year, down 8 percent from 2007. By the fourth quarter of last year, VC funding had fallen 25 percent from the same quarter in ’07.

A total of 3,808 companies were VC funded last year. Six companies, VC-funded or otherwise, went public, compared to 86 in 2007. Acquisitions fell 28 percent.

VCs are looking for quicker payback than they expected in the past, Weinstein said. Second and third funding rounds are becoming a thing of the past. They are also looking for companies with established customers, products and revenues--or at least two of the three, and not necessarily just any revenue source.

Wienstein said some of the traditional TV revenue models are out of favor. CPMs, ad-driven models and eyeballs are history.

“They think the model is broken,” he said. “This is not a recession, it’s a recreation of a model. The big car companies are not coming back… and spending in two years.”

Even service business based heavily on human capital, and hits-driven revenue models are old hat. Mobile content apps rate a “maybe,” and Web-search ventures are slipping into the passé lane.

“Although good video search hasn’t been achieved,” he said. “People and keepers of metadata are not out of favor.”

Big ideas are imperative to attract VC, as well as a solid team and a track record. “Player coaches” are now more valued than executives that direct from the sidelines, he said. “Get back into start-up mode.”