Venture Capital Panel Discussion: Fred Wilson & Jordan Levy

Posted on January 9, 2009


This morning’s sessions at the InmanNews Real Estate Connect Conference in New York City included a panel discussion with Fred Wilson of Union Square Ventures and Jordan Levy of Softbank. Some interesting insights and perspectives regarding the state of venture capital and the general economy.

From Fred Wilson (who also authors the A VC blog):

  • Spoke the prospects of building additional business applications on the Twitter API – labeling Twitter more as a platform than a service.
  • Said that given the economies of scale, a viable internet business can be built on $20 million of revenue instead of the traditional $50-100 million models.
  • The issue with the smaller revenue scale is finding venture capitalists to invest in these enteprises since it presents an exit problem for VCs. Assuming a 25% profit margin, a $20 mln business yields $5 mln in profits. If a VC owns 50% of the venture, that equates to an annual dividend of $2.5 mln which doesn’t mesh with the 10x IRR models on which VCs operate.
  • As a result, he discussed SecondMarket as a potential market location to buy and sell private shares of these start-ups to enable better liquidity of these smaller internet companies even though the company was initially developed for bankrupcy and vendor claims.

From Jordan Levy:

  • Read some well-known statistics about the number of IPOs in the market (8 total in 2008 and none in the second half of 2008)
  • Said that the VC industry as a whole has returned 0.2% over the last seven year period.
  • Relayed the regulatory burdens hindering the IPO market by using his own attempt at an IPO that cost $3.5 million and utimately led to the decision not to go public. This is a well-documented problem also described in Michael Malone’s recent WSJ article.
  • Said that there is still lots of venture and institutional money available for good ideas, but given the current economic state, competition for that money will continue increase.
  • Felt that angel capital is less robust (“the angels are scared”) which doesn’t bode well for small scaling companies requiring start-up capital in the $50K – $3 mln range that falls below the VC channels.