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Confronting a Changing Industry

Against the backdrop of rapid evolution in venture capital and private equity investing, the Venture Capital and Principal Investment Club (VCPI) held the 2001 Annual VCPI Conference on January 27, 2001.

This year’s conference featured some of the industry’s most influential players delving into its most compelling and difficult issues, including the possibility of an industry shakeout and its potential effect on both the technology sector and the economy in general. Keynote speakers included Richard Kroon, Chairman of Sprout Group; Jeff Walker, Managing General Partner of Chase Capital Partners; Alan Patricof, Chairman and General Partner of Patricof & Co Ventures; and John Taylor, Director of Research for the National Venture Capital Association.

The conference was organized along four tracks. The first conference track focused on the opportunities that the “New Economy” affords the venture capital community. One highlight of this track was a morning panel discussion on healthcare and life science investing which offered attendees a glimpse at new models of investing like genomics incubators. This panel was followed by an intriguing look at how stock market corrections and plummeting fund returns have altered both investing styles and the venture capital competitive landscape itself.

The second conference track confronted recent changes in venture capital and private equity investing.

One popular panel analyzed investing beyond the leveraged buy out (LBO) in “alternative assets” such as real estate and mezzanine debt. Attendee Petter Johnsson reported “although asset prices are extremely attractive, absent debt markets make potential acquisitions very difficult to execute.” Finally, the recent phenomenon of traditional LBO firms investing in start-ups was scrutinized. Although some limited partners have grown wary of funds investing in both early and later stage companies, “some funds believe that the flexibility to do so is necessary given ever-changing markets,” commented Johnsson.

The third conference track evaluated the limitations of US models of venture capital and private equity investing in both emerging markets and Europe. Said conference attendee Federico Muxi, “certainly the diversity of investment opportunities has been replicated, but it’s unclear if returns will be comparable.”

The last conference track concentrated on career considerations for would be venture capitalists and entrepreneurs, an especially acute concern of conference attendees. The first panel studied the venture capital job search process from firm selection to carry negotiation, confirming the important role of networking. Concluded Muxi, “operational experience is clearly a help in venture investing, but I think less significant for entering traditional private equity investing.” Another engaging panel looking at negotiating term sheets entertained attendees with a mock negotiation between entrepreneur and venture capitalist.

Both conference attendees and panelists unanimously praised the conference’s overall salience. Said one attendee, “the business is undergoing tremendous change, and that’s relevant whether you are a potential investor or recipient. This conference could not have come at a better time.”

February 20, 2001
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