VC Q&A: Wilson Sonsini's Sherman and Fockler Discuss the Changing VC Industry
July 17, 2014
As part of our 3Q 2014 U.S. Venture Industry Report, which published yesterday, we asked Craig Sherman and Herb Fockler, partners at Wilson Sonsini, some questions about the VC industry, including how today's environment differs from the dot-com boom and where they see the industry heading in the quarters ahead. If you haven't already, be sure to download our latest U.S. VC report, which is available here.
Q: VC investment activity is approaching levels not seen since the Internet boom of 1998-2000. In your opinion, what are the two or three big differences between then and now?
A: During the Internet boom in the late ’90s, many venture-backed companies were in constant fundraising mode and assumed that they could maintain a high burn rate while raising new equity at least once a year, if not more frequently. When the well ran dry, many died of thirst. Most investors and entrepreneurs learned the right lessons, and have been storing jugs of water ever since for the inevitable next drought. And because the advent of cloud computing and open-source software has allowed startups to spend far less money to get far further, it’s even easier to avoid becoming addicted to easy money. So, today’s startups are better prepared and better positioned to survive long-term.
Far more of the business ideas that startups are pursuing today make sense. That’s not to say they all make good sense, but there are a lot fewer that make no sense at all, if you think them through outside of an environment like the bubble of the late 1990s. So, working with startups today typically doesn’t require a willing suspension of disbelief, and working with companies going public really doesn’t. Notwithstanding some of the buzz about social media companies, many other companies are going public right now selling tangible products satisfying important needs of other businesses. And even the social media and Internet companies going public are generating real revenues right now, rather than selling the future.