Will a Debt Crunch Drive Smart Minds Away from VC, Entrepreneurship?

2 Aug

Roger McNamee The stumbling of the debt market in the United States and internationally within the last couple weeks is an issue of concern not just for banks and big businesses, but for entrepreneurs and venture capitalists as well.

Roger McNamee, the Managing Director and co-founder of Elevation Partners and author of The New Normal, spoke yesterday at the Stanford Summit about the “Long Shadow of Debt” facing Silicon Valley.

If you’re an entrepreneur, do the things you need to make the company more valuable — and be prepared to do it for awhile… We are going to vaporize a ton of private equity, venture capital, and public market capital, and when that’s done, we’re going to have a bull market like no one has ever seen.

He did not deny, however, that these will be hard times for entrepreneurs, who will have to cope with a tightening of the purse strings of venture capitalists, and reduced opportunity of an exit by being acquired by a private equity shop.

As Epicenter paraphrases from McNamee, “The lesson? Hard times are coming as the amount of liquidity available dries up. But it won’t disappear forever, because the underlying opportunities are still there.” McNamee continues, “If you’re an entrepreneur, don’t run out of money — and be prepared to do it for a long time. But the market potential is huge. I think this is a great time to be an entrepreneur.”

The question that leaves in my mind, is how this emerging shift should shape the decisions of someone who is considering entering the ventures world. Will opportunities be fewer and further between? Will that drive smart minds back into bigger business and industry?

One Response to “Will a Debt Crunch Drive Smart Minds Away from VC, Entrepreneurship?”

  1. Tony August 3, 2007 at 2:12 am #

    It obviously all goes in cycles. After the bust, capital was scarce. Then for a while, it was abundant – but not the same way that it was during the boom. Since VC’s are more responsible now, they drained their funds and are working towards getting those startups successful, they way they should. Once they get some liquidation, the cycle will start anew.

    I suppose that means that funding may be more scarce at the moment, and that it’s great to join an in-flight company (maybe Series B?) In a couple years, the cycle will start over – and maybe normalize eventually, but not for a while.

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