Strategic Investment Group

REASSESSING VENTURE CAPITAL

September 2001

Over the past five years, the venture capital industry helped to inflate one of the greatest speculative bubbles in history. Institutional investors poured enormous sums of capital into venture funds, with commitments peaking at nearly $70 billion dollars in 2000, a dramatic increase from less than $3 billion raised in 1992. When the Internet bubble burst in March 2000, valuations of both private and public technology companies imploded. Now, with clearer heads prevailing, the revised view of these venture-backed businesses is that many were ill-conceived and poorly managed, and that they had overestimated the market opportunity they were seeking to exploit. Under today's more sober assessment, many of these companies find that their ability to secure additional financing is severely constrained, and their financial predicament has resulted in significant layoffs, bankruptcies, and write-offs.

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