From survival to growth
Winning through excellence and innovation in a downturn

When assessing the current state of the Venture Capital (VC) ecosystem, an important distinction needs to be made between the current   nancial crisis and the aftermath of the burst internet bubble of 2000 — the last severe downturn faced by the VC industry with which it is tempting to draw parallels to today’s situation.

In 2000, the venture industry was part and parcel of the bubble and the subsequent downturn. Fueled by “overexuberant” stock markets that placed unsustainable valuations on dot-com and technology companies, VC grew globally from a US$30 billion industry to a US$125 billion industry, only to retreat to a US$25 billion industry as public markets collapsed — all in the space of just three years. This collapse was followed by a real industrial
downturn in telecommunications, software, computers and electronics, hitting even quality companies with real business models and real products. Even so, the downturn was largely con  ned to the technology sector while other parts of the economy continued to perform relatively well.

The current downturn is much more complex and driven by fundamental issues that are not related to VC or the technology industry. A variety of overlapping circumstances combined to create today’s global  financial crisis. Among them were the collapse of bubble-like real estate markets, poor lending practices, a lack of adequate risk management in the use of derivative   nancial instruments, and debt being overleveraged by both businesses and consumers. Thus, the venture industry is adapting to a   nancial crisis caused by external factors.