Venture Capital: Times have changed; many people haven’t

At 6 foot 9 inches tall, Bill Gurley commands attention.

So when the Silicon Valley venture capitalist and former University of Florida basketball player arrived in town yesterday to discuss the ups and downs of the venture business, Gurley had the ear of almost every prominent Seattle venture capitalist.

by John Cook SEATTLE POST-INTELLIGENCER REPORTER

Not only was it Gurley’s physical presence. It was the firm he stands behind: Benchmark Capital.

Benchmark — a Silicon Valley powerhouse with $2 billion under management — was one of the most successful venture capital firms of the late 1990s as it took stakes in companies such as Ariba, eBay, HomeGrocer.com, Juniper Networks and Nordstrom.com. In 1998, Benchmark — along with Seattle’s Maveron — was ranked the top-performing venture capital firm in the country by The Red Herring magazine. Its publicly traded portfolio returned a stunning 1,304 percent that year, the magazine said.

Times have certainly changed, especially in Silicon Valley where Benchmark does most of its deals. Gurley said there’s been a noticeable decline in traffic, a dramatic drop-off in commercial real estate prices and a surge of resumes on his desk from people who declined jobs two or three years ago.

Venture capitalists, he said, are taking their time on new deals and working harder on inside rounds with existing portfolio companies. Partnering with other venture firms — known as syndication — is more common than ever as one-time rival firms attempt to cut risk.

"All the firms are in this group hug," said Gurley, who spoke to members of the Evergreen Venture Capital Association at the Columbia Tower Club in downtown Seattle. "People are trying to reach out and make the industry what it used to be."

Despite the changed climate, Gurley said there’s a "slow cultural reset" in which many entrepreneurs and venture capitalists continue to live as if it were 1999. The mind-set is changing in the start-up community, though it is slower than one would expect.

Another big worry for Gurley is the amount of venture money sitting on the sidelines. More than $200 billion flowed into venture capital funds in the past three years, a figure that Gurley said would be enough to fund 25 years worth of companies at pre-Internet-bubble levels.

"This overhang is problematic," said Gurley, adding that it leads to too many companies chasing too few opportunities. "There are more than 250 start-ups in the security software industry and that is an issue."

But Gurley, who sits on the boards of Epinions, OpenTable and Respond Networks, remains upbeat that the venture capital industry will come out of the slump.

"Optimism is part of our business," he said. "You do not play in the high-risk, high-reward venture capital business without being optimistic."

Among the sectors he thinks could show promise in the near future are wireless local-area networks, specifically 802.11, and supply chain management. But when asked about other hot sectors, Gurley sounded a note of caution.

"You see ideas come up and then you see huge amounts of investment," he said. "Take Web services . . . there are 50 companies before we know anything about it."

As far as Seattle’s positioning in the technology market, Gurley thinks solid companies will continue to be formed in the Pacific Northwest because of the top-notch service providers and strong entrepreneurial culture here. However, those start-ups might have a harder time getting money from Silicon Valley firms, which he said have taken a somber view of investing outside the San Francisco Bay Area.

Yet, on several occasions he asked the audience of more than four dozen to pass on any hot deals they might find in Seattle.

"The real reason that this is a good place is that this town understands what being an entrepreneur is all about," said Gurley, pointing to the successes of venture-backed companies such as Amazon.com, Starbucks and Costco. "I have a very positive view of the Pacific Northwest."

Voyager Capital’s Enrique Godreau, who attended yesterday’s talk, agreed that Seattle has not lost its luster for entrepreneurialism.

"We travel quite a bit and the sentiment as it relates to Seattle is very positive" Godreau said. "If you go back East, there is a lot of confidence in terms of the things happening here."

But Jon Staenberg, managing director of Seattle-based Staenberg Venture Partners, isn’t so sure about Seattle’s high-tech community — at least not in the near term. The way Staenberg sees it, local venture capitalists and entrepreneurs remain shell shocked from the past two years. In Silicon Valley, where venture capitalists and entrepreneurs have seen boom and bust cycles during the past 30 years, Staenberg said the attitude is very different.

"They will say it is as bad as it has ever been, but they will also say we have been through it before. That helps a lot," he said. "The response here is ‘I am going back to Microsoft.’ The response down there is: ‘I am taking some time off, but then I am going to start another company.’ "

http://seattlepi.nwsource.com/venture/86833_vc13.shtml