So Long, and Thanks for All the Carried Interest

21 May ’05

Howard Anderson, co-founder of Boston VC firms Battery Ventures and YankeeTek Ventures, has decided to leave the VC business and has written about the reasons why. In brief:

  • First, technology supply is bloated. Innovation is not dead, but demand for new technologies is moribund and will continue to be weak for at least the next five years
  • Second, there’s a good reason why technology spending is stagnant. The hype machine is broken. For years, technologists told the world that “information is strategic”; we said that if companies didn’t overspend to protect against Y2K they were committing corporate hara-kiri. Executives spent like crazy people. No longer. Their new mantra: spend no more than last year
  • Third, the financial markets for technology companies are no longer exuberantly irrational. VCs hate rational markets
  • Fourth, these changes in venture funding are structural, not cyclical. VCs actually like cyclical markets; we can buy in cheaply and wait for exuberance to bail us out
  • Finally, it’s not just supply of new technology that is too abundant. Ten years ago there were 240 member firms in the National Venture Capital Association. Today, that membership has nearly doubled, and our fund size under management has increased eightfold
  • There have been a few posts lately, not all of them friendly, on the decision:

  • Feld Thoughts
  • Business Week Online
  • Infectious Greed
  • A VC
  • Meanwhile, Nicholas Carr stands off to the side and jabs everyone with a pointy stick.

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