The current wave of IPOs that investors hope will extend from LinkedIn through Groupon and onto Facebook is making some venture capitalists very, very wealthy. But the bonkers bubble money isn’t exactly getting spread around. Bloomberg reports that the success of firms like Sequoia, Greylock, Accel, and Andreessen Horowitz, all of whom have equity in the most valuable start-ups, is driving a massive wedge between “the venture-capital industry’s haves and have-nots.”
LinkedIn’s IPO, for example, has already yielded $2 billion in paper profits for backers like Sequoia and Greylock. Groupon hasn’t gone public yet, but its top investors like Accel and New Enterprise could end up owning a $5 billion stake. These are accredited private investors we’re talking about, so it’s not as though the VC-equivalent of the top one percent is making paupers of their competitors. But it is creating vastly disproportionate access to deal flow and capital.
David Schwartz, co-chair of the emerging companies and venture-capital practice at Michelman & Robinson in New York tells Bloomberg:
“The rich are getting richer, and they’re finding the better products and better companies at better valuations. It’s making it very complicated for second-tier funds.”
The drought of IPOs through over the past few years lowered the number of active VC firms. But although the NVCA says fundraising has jumped 76 percent (year-over-year) in the first quarter to $7.1 billion, it might not get funneled toward the recession’s “walking dead”: firms that are only working with their existing portfolio and lacking cash to make new investments.
Nonetheless, their loss might clear the brush for newer firms like Mike Maple’s Floodgate Fund and Boulder’s Foundry Group, which was Zynga’s first venture investor. These younger firms have the benefit of being on top of newer trends like mobile apps and social networking, entrepreneur Eric Ries tells Bloomberg. Plus, we imagine, they don’t have the stench of dashed dreams from the last bubble.