Conseils pratiques pour entreprises high-tech / Real-world advice for high-tech companies
enews dated 17DEC02

Are VCs still relevant?

by Josh Greenbaum
Enterprise Application Group
Copyright © 2002

The formula for Silicon Valley success is well-known: take a great idea (preferably conjured up in a garage), a couple of wildly optimistic but visionary entrepreneurs, and a savvy old venture capitalist with lots of money to spend funding the new idea. Mix well, wait 18 months, do an IPO, get rich, move on to the next great idea. With little exception (no garage, not a lot of vision, an acquisition instead of an IPO), this has been the model for an entire business culture. Until now. As the high-tech industry wakes up from the hangover of the dotcom era, this tried and true model is looking more nostalgic than practical. And as venture capitalists continue to cut funds, people, and investments - and the IPO market continues its long hibernation - the question of whether innovation and venture capital are meant for each other is becoming a burning issue in the Valley.

The VCs' problems are many. Their own investors are clamoring for some return on the hundreds of millions the VCs were supposed to invest. Most funds are simply doing nothing while charging their increasingly frustrated investors management fees despite their lack of activity. The VCs have drastically cut back their investing for a very simple reason: without an IPO market, and with so many companies for sale at vastly reduced values - thereby undercutting the market for acquisitions - the VCs really have no reasonable way to get their money out of their investments, much less so at a profit to their investors. Meanwhile, many of those portfolio companies that haven't gone bankrupt are on life support or worse, and the VCs' visionary and networking powers seems to have vanished with the trillions of equity that disapeared from the US market in the last two years. The result is few new investments, anywhere. And what investing is taking place is largely in second and third rounds to prop up ailing portfolio companies. New investments for new companies are as rare as a dotcom start-up with real profits.

Meanwhile, innovation continues. New ideas are still cropping up. Prospective customers, while unable to spend tens of millions, are still looking desperately for new ways to increase productivity and maintain their competitive edge. And, true to form, smart people are struggling to start new companies and become the next Valley success story. Only they're doing it without the same level of support from the VC community. A number of companies I'm working with are actually trying do without VC money at all. At least until the company is self-funding - way past the normal stage for a VC infusion.

Some of this self-funding is anti-VC. Entrepreneurs complain that VCs undervalue, over-influence, and, when they don't get their way, simply kick the entrepreneurs out and try to run the start-up with visionless bureaucrats. Fair enough: there are all too many examples of how the model has failed. This isn't the case across the board, however. There are still good VCs who are participating in a positive way that goes beyond just providing cash or endlessly meddling. But even the best are faced with a market that's limiting their ability to have the influence they once had. As VCs curtail their investments, and entrepreneurs seek alternatives, VCs are facing a new reality: playing a sideline role in the next generation of high-tech success stories.

The new sources - angels, investor keiretsus, customers and partners - aren't really new. They've been there all along. But their rise at the expense of VCs signals a potentially new chapter in technology innovation. The VCs will always be there too. But by missing out on the early stages of entrepreneurship, they're sacrificing money and power -two engines of influence that no player can afford to lose.

Will this funding shift change the landscape for high-tech beyond this hopefully short depression … I mean recession? If many of the non-VC funded companies succeed, it will certainly be a blow to the VC model. It may also be a tribute to the power of ideas. One of the ironies of the moment is that the very best and most carefully planned start-ups I've seen recently are precisely the ones that are making do without, or severely limiting, VC funding. The founders are all seasoned pros, the business plans are solid, they have good angel funding and customer connections, or know where to find them. They are also, not surprisingly, running very lean. Considering the state of the high-tech economy, many of this post-VC crowd would be out of work if they weren't doing a start-up. Drawing a very relatively small salary is infinitely preferable to living off the land.

The final irony of this situation may lie in the fact that, if the post-VC scenario holds, the VCs will have been the architects of their own diminished influence. It's not just that their relative conservatism and lack of an exit strategy will force new funding to emerge. The fact is, the seasoned pros who are doing without VC money all cut their teeth in VC-funded companies. They either know what they're doing or know where to get help and influence without giving up equity and control. The VCs kids have grown up.

There's really only one alternative: either the VCs take more risks, and get back in the game, or we as an industry accept that high-tech innovation and venture capital aren't as good a match as we once thought. From the entrepreneur's point of view, it may not matter. Either scenario may tend to add some competitiveness to the funding process. But if I were a VC I'd be worried. Because one thing is for sure: VCs or not, innovation marches on. ¤¤¤

Comment survivre en attendant le retour des VCs

On l'aura compris, les conditions de financement par le capital risque ne sont plus celles des années fastes de la fin des années 90. Pour ceux qui, comme moi, ont commencé à fricoter avec le capital risque dans les années 80, ce qui se passe aujourd'hui n'est pas beaucoup plus qu'un retour à une situation "pré-dotcom" où il fallait vraiment montrer patte blanche avant d'espérer le moindre argent frais. La différence cependant, c'est qu'il y a beaucoup plus de possibilités aujourd'hui qu'il y a dix ans. Et c'est tant mieux.

Voici quelques conseils :

Faire feu de tout bois. Pour un entrepreneur, il n'est plus question de limiter sa recherche de financement auprès des seuls VCs. D'ailleurs, dans bien des cas, ce ne sont plus les bons interlocuteurs. Pour un tour d'amorçage, la famille, les amis, les business angels et les investisseurs régionaux (sans compter les ASSEDIC !) sont beaucoup plus accessibles que les VCs "parisiens" dont les procédures et les critères paraissent souvent inadaptés.

Rechercher les financements publics. Dans les conditions actuelles, un entrepreneur qui ne fait pas le maximum pour obtenir des financements publics commet une faute. L'ANVAR, la DRIRE, le RNTL, le FRAC, le CIR, l'AREX, la COFACE, etc. sont autant d'excellentes sources animés par des gens très compétents dont le métier est précisément d'aider les entreprises.

Développer un business plan réaliste. Inutile de doper ses prévisions simplement pour faire plaisir à un VC, personne ne gagne à ce jeu. Aujourd'hui, les start-ups ou PME high-tech capables d'annoncer sans sourciller des croissances suffisantes pour garantir aux VCs les rendements qu'ils recherchent en deux ou trois ans sont assez rares. Mieux vaut s'en tenir à un business plan "réaliste", il sera bien plus accessible aux autres investisseurs car moins gourmand en cash que les "turbo-plans" recherchés par les VCs.

Allonger le scénario de financement. Il ne va pas être facile dans les mois qui viennent d'aller chercher de quoi financer les deux premières années de développement d'une société immédiatement dès le premier tour. De fait, les scénarios de financement tendent à devenir beaucoup plus longs avec des étapes intermédiaires et un montage technique plus sophistiqué. La recherche d'argent frais doit devenir le deuxième métier du dirigeant de start-up.

Se rapprocher des grandes entreprises. La meilleure tactique à court terme est sans doute de trouver le client pilote qui financera le développement du produit (ou du service) et qui constituera une première référence crédible. C'est un schéma fréquent aux Etats-Unis, il est temps de le développer en France. Les grandes entreprises bien établies ont un rôle à jouer dans le renouvellement technologique. Elles y contribuent autant par leur propre R&D que par le soutient qu'elles peuvent prodiguer aux start-ups.

L'étau qui handicape la communauté du capital risque ne se relachera pas avant la fin de l'année 2003. D'ici là, il nous faut apprendre à devenir créatif dans le financement de nos entreprises.

Cédric Thomas