Ritual Wringing of Hands
I ran into Mike Feinstein in the hall a few days ago and he told me (now I am going to get the numbers wrong but he can correct them if he wants) that there are something north of 9000 venture financed companies out there and that last year (I probably have the time period wrong but it does not really matter) there were only about 30 M&A exits at valuations north of $150 million. The exits represent about .3% of the financed companies. That is what I think of a ski slope number. Let me tell you what I mean by a ski slope number.
I have it on good authority that in Dubai, they built an indoor ski slope. Imagine building an indoor ski slope in the middle of the desert. Just stating the proposition demonstrates its absurdity and hubris. It palpably demonstrates that the pendulum has swung too far. So a ski slope number is one that demonstrates palpably that the pendulum has swung too far.
At the risk of going to the absurd place myself, it is possible that our VC friends have made 8970 crappy investments? Or, even half that? I don’t think so. Is the exit market shut down? Absolutely, but that doesn’t mean that people made poor investments or that the much publicized poor asset class returns for venture investments are going to stay that way. Those 9000 odd companies represent pent up exit demand. When the conditions are finally right, exit activity will skyrocket.
It is, of course, impossible to know when conditions will be right. But here is a contrarian sign. I recently attended a telecom industry event at which an HBS professor announced, with the conviction of the recently converted, that the next five years will be boring. Now, as far as I can tell, academics are notoriously poor at predicting the future. It is a ski slope statement. So, my prediction is that all the money that is being injected into the world economy will generate lots of activity. The nature and amount of that activity is still to be seen.