InterWest News
Show Us the Money
Can entrepreneurs and innovation survive without venture capital?
Newsweek Web Exclusive
Nick Summers
14 March 2009
Arnie Oronsky, managing director, InterWest Partners
Why is venture capitalism in trouble right now?
In order to make venture capital work, you have to put money in, build companies and then get out of the companies, either by getting them public or selling to bigger companies. A major way to do this is to get it public. There is zero opportunity to take companies public today. So one extremely important source of money to build a company to profitability is now gone for the moment.
If investors are becoming reluctant to back VC funds, what's the implication for the whole economy?
Venture capitalists are the highest-risk investors, the highest-risk people. If a venture capitalist is starting to get risk averse, this is like an unbelievably bad sign. Because if the venture capitalists don't want to take a chance, I don't know who in the world would.
Is there reason for optimism?
Prices are good now. The value of technology, the value of life-science companies, is dropping. And if you want to put your money to work, and you have nerve, this is the right time to do it.
What's the long view?
Some of us, like InterWest, that have been around long enough to live through a number of these cycles are likely to be somewhat less risk averse. Because as a venture capitalist, you have to be optimistic, have a long-term view and have enough experience to know this cycle will disappear. Whether it comes back to where it used to be, or slightly lower, or how long it will take, no one knows.
What's the relationship between risk, innovation and the economy as a whole?
In terms of going forward and building the country, risk aversion, in times like this, is actually not good. It's not good for the venture-capital community to be too risk averse, because then you stifle entrepreneurship and innovation. And whether you like it [or not], innovation goes on. It's going to continue. People have ideas, great ideas. To stifle that, because there isn't the funding around to take advantage of it, is not the American way. I don't want to sound like a politician, but I believe that.
Silicon Valley has driven the American economy for quite some time now. And I think it would be a drastic error to pare that down, to depress innovation, because we have to do this to succeed. We have the kind of culture and society that can do it. Because it engenders, that whole thought process is building new things; entrepreneurship is fundamental to the American culture.
Is there angst in the industry about the venture-capital business model itself?
Yes. At other points in time you could, with some surety, say if you picked the best venture-capital funds, you'll make money. In the blackness, the way it is today, the people who invest in venture funds, who are called limited partners, they do have concern that the whole system isÃ'I wouldn't say broken, that's not the right word. But you now have to be much more careful than you were before.
There is angst in the system for sure, there's just no question about it. And the angst goes all the way through the system. If your limited partners are worried, it definitely flows through to you.
