With VC Shifts and Exit Boom, Market Is Perfect for Entrepreneurs

Published on October 27, 2010

Despite the seemingly staggering dips since 2000 in VC investment and in the number of VC firms still standing, now is a great time to be an entrepreneur, said Vishal Verma, ’07, partner in Edgewood Ventures, LLC. “The market is getting much more efficient,” Verma said during the entrepreneurship panel of Chicago Conversations hosted by Kicklabs in San Francisco on October 27.

Among the signs of significant changes in the dynamics of VC firms since 2000 are substantially smaller returns on investment in exits and far longer holding periods before exits, he said. Meanwhile, the number of VC-backed exits in 2010 has increased dramatically from last year, Verma said. “Early stage investments have gone up,” he said. “The market is great, mainly because these liquidity events are happening.”

Verma was among four VCs and entrepreneurs joining moderator Matthew Janopaul, ’99, president and CEO of Pasta Pomodoro, to share expertise and perspective on the current landscape of entrepreneurship and to consider the future of the sector. More than 100 Bay Area alumni, entrepreneurs, and VCs attended the event.

In the previous technology boom, entrepreneurs operated under the idea that they must get VC funding to develop their businesses, Janopaul said. “One of the lessons learned in the last 15 years is that you’re actually better off waiting,” he said. “Now you want to spend as much time as possible building a company from an idea, generating revenue and customers, and developing a team before you seek venture money.” After receiving VC funding, companies become bound by the terms of their venture financing and the life cycle of the VC fund, Janopaul said. “Once you take that money, the clock is starting and the company and its trajectory have changed forever,” he said.

Rumors of the death of innovation in information technologies are greatly exaggerated, said Devin Poolman, CEO and cofounder of Metricly. Rather, IT innovation is expanding laterally into new areas, Poolman said. “The difference between the internet and semiconductors 15 years ago is that the internet has applicability,” he said. “It’s flexible and horizontal. Social networks and the accessibility of information are driving innovation.”

David Lieb, the CEO and co-founder of Bump Technologies, explained how the firm developed a popular application that let mobile phone users share contact information by literally bumping the phones together.In order to avoid the “fuzzy math” of the dot-com bubble, he said, Bump carefully tracks customers daily to evaluate retention. “We examine how many people download our app each week and how many used it each of the following weeks,” he said. “Much of our efforts are spent learning from our users. We have a slightly different way of tracking our users than simply calling them on the telephone. We have to observe customers and infer what they really want from their use of the app, which is always a bit of a challenge. Ultimately, we invest more in the features they use more.”

Talking to the Experts

Some audience members said they came to the event to hear from players at each stage of the entrepreneurial process, a group chosen by Nima Merchant, assistant director of employer development for Career Services at Chicago Booth. “There was a first-time entrepreneur, a serial entrepreneur, and investors, including an international angle,” said Arkadi Popov, ’06. “That provided a wide range of scenarios that were important for the audience to hear.” Robert Chaykin, ’98, agreed. “The speakers were all cut from different molds, but each brought something genuine and authentic to the table,” Chaykin said. “This was the same way my teachers at Booth approached topics.”

Others appreciated the chance to network with successful entrepreneurs and VCs after the panel discussion. Darshan Ahluwalia and business partner Ben Johnston came to gain exposure to entrepreneurial ideas as they prepare to launch a start-up, Ahluwalia said. “I came here for the opportunity to talk to and interact with experienced startup founders and investors,” he said. Johnson echoed the thought. “This was a good introduction to the whole process and the sort of businesses we want to emulate,” he said. “We made some great contacts that are going to be useful down the road.”

— Phil Rockrohr