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Bubble or return to pre-bubble? Sequoia raises more money


sequoia.jpgAcquisition fever and venture capitalist interest in tech companies is driving up the value of private companies, especially the more mature ones. And we're wondering if Sequoia Capital might be barometer of sorts.

Some have called this the latest bubble, but VentureOne analyst Josh Grove says prices have merely returned to pre-bubble levels, after valuations fell drastically in 2002, according to the latest report by VentureOne released today. The value of companies, which venture capitalists effectively set by negotiating with entrepreneurs for a stake in the companies they invest in, is at the highest level since the second quarter of 2001. The median pre-money valuation is $15.6 million.

Anyway, the interest in late-state private company is underscored today by a one-line item in PE Week, which reports that respected Silicon Valley venture firm Sequoia Capital has raised $520 million for its latest fund focused on later-stage investments.

No surprise that Sequoia wanted more money. We mentioned here how they're paying a high price for stakes in some mature Internet high-fliers.

But you remember what happened when Sequoia raised a special fund in 1999 to invest in late-stage investments? Yep, the bubble burst a year later. Here's our story from 2001 (scroll down).

Update: VentureWire has done the digging (sub required), and reports the following about that previous 1999 fund:

That fund has not had a strong rate of return. According to the Regents of the University of California alternative investments, as of March 31, 2005, the fund had a net internal rate of return of minus 17%.

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From: SiliconBeat
Sequoia raises $861 late-stage fund; shrugs of legacy of Webvan et al.
Excerpt: Sequoia Capital, enjoying the buzz from being one of the most successful venture capital firms, is trying its hand at investing in later-stage companies, something it failed miserably at during the Bubble....
Tracked: May 22, 2006 6:35 AM


Disclaimer: I can only speak from my own experience, but here goes:
As a serial Internet-Entrepreneur, the Dot-Bomb taught me one thing, build a solid business. The more solid your business the more likely you can get funding.

But here is the rub, with Entrepreneurs making better businesses with solid models, the need for funding decreases. My 6-month old start-up (though a small company) is already paying the bills with no outside funding. In the past, Internet Companies looked for funding to keep the lights on, because of the dearth of investment activity the last 4 years; we've now found ways to keep the lights on ourselves without outside money.

5 years ago I would be spending my time pimping a business plan, today I'm busy just running the company, if an investor wanted to join us, they would have to offer one hell of a great deal.

Adam Bruce

Adam from Vidiac on September 14, 2005 1:04 PM
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I agree with Adam, though for some of us, we risk getting run over if we go without funding (after a certain point). The bigger players will most likely be more than happy to take all the innovation from the little guys and just kill them with marketing, since a lot of things are unfortunately just about perception.

Bootstrapping is the ideal however, and I think every company should try that first, if at all possible.

Andrew Holt

Andrew Holt on September 14, 2005 6:11 PM
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there is definitely money to be made sans venture capital. i would say that both business models have changed but, this has only been made possible by consumers being willing to change. i think consumers are finally willing to pay for web-services beyond the broadband connection they already expense. this in fact makes business plans very easy, as long as you have a product that people are willing to pay for. but, vc is important. if you are in a highly competitive field (which all web startups seem to be in these days), you will still need some capital if you want to get people to notice.

aaron on September 14, 2005 6:41 PM
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I apologize for backtracking, but I just read the post that you guys linked to:
talking about Zappos.com and a couple of online marketing companies winning venture capital money. My question is, why are these online marketing companies receiving so much attention, and what makes them different from the slew of online marketing and ad agencies that we have in New York City? I've built my career working at ad agencies, and I can attest that as service companies that bill by the hour (or by the job when the competition is particularly tight), the business isn't incredibly lucrative. I think that mega-agencies and umbrella companies can pull it off through efficiencies, but it's a tough market for small and medium sized agencies, particularly as competition is intense and clients are ever more demanding. Do these marketing agencies have a business model that we don't know about, or are they receiving all this attention because they're in silicon valley?

Shig Odani on September 15, 2005 7:47 AM
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