Over the past weeks I have made a post on growing interest of angel investors in finding deals to invest in and on the overhang of funding in VC funds.
So what does all of this cash looking for deals mean to entrepreneurs? Remember Economics 101: too many dollars going after the same product makes it a sellers market. In this case, the VCs and angels chasing deals are the buyers and entrepreneurs with deals to invest in are the sellers. When money was tight we saw angels go into hiding and VCs shifted their focus into later stage ventures that had already proven their businesses in the market. But, the improving economy has changed all of that by putting lots of cash back into the investment market.
For example, Red Herring reports that Menlow Investment's newest venture fund has recently closed, raising $200 million more than the planned $1 billion. "The funds will go to between 50 and 60 private companies over the next four years. The firm invests in IT and life sciences at all stages of development." You heard them right: all stages of development.
We have not seen VCs so actively focusing on start-ups in years. Once again, the financing landscape is changing and this time in favor of start-up entrepreneurs.
And interestingly, Sarbanes-Oxley is also making start-ups more attractive. Sarbanes-Oxley has thrown a huge bucket of cold water on IPOs due to the overwhelming reporting requirements this new law has created even for small public companies. The days of VC investments targeting businesses needed help getting to IPO status have almost vanished. So to get the kind of returns that VC funds promise their investors, they are looking more at early stage businesses that they can invest in and help move toward an acquisition. And all reports are that acquisitions are way up.
There is significant and broad momentum building in this entrepreneurial economic expansion and this latest news suggests that we may see at least five years of growth.
