Web 2.0 Faces a Squeeze
Jan 30 2008
Global financial turmoil caused by the subprime-mortgage meltdown, and the resulting credit crunch threatens to pour cold water on the red-hot technology venture capital market, a leading New York investor said.
Promising startups may be starved of capital, said Fred Wilson, general partner at Union Square Ventures, as investors pull back amid market volatility that is damping the market for initial public offerings. Wilson, added, however, that his $125 million venture capital firm will actively look to "take advantage" of any slowdown by investing in startups at lower valuations.
Wilson also said that he thinks News Corp. chairman and C.E.O. Rupert Murdoch made a strategic mistake by declining to make the Wall Street Journal's website free. Ending the subscription-based model would not only attract more readers and generate additional revenue, it would ensure that the Journal remains at the center of the business world's conversation as readers migrate to the Web.
The full Q&A of Wilson's interview can be found here. Video highlights of his remarks about venture capital are here, and video highlights of his thoughts on Rupert Murdoch and the Wall Street Journal are here.
Wilson's primary concern, though, is the current financial turmoil. He sees it having a domino effect that could stifle the booming Web 2.0 venture capital market.
"There has been a real 'de-risking' of the market, which will certainly affect the I.P.O. market," said Wilson, whose firm was an early investor in the social bookmarking site del.icio.us, which Yahoo bought, and Twitter, a site that combines social networking with blogging.
"That will impact the late-stage venture market," Wilson added, "because the I.P.O. market drives the late-stage venture market. And that will slowly impact the early-stage venture market."
As investors move out of equities and into fixed income and other usually safe investments, equity prices will drop across the board, he predicted, creating bargains.
"Valuations will come down," Wilson said. "There will be less exuberance about venture capital investments. What will probably take place is a flight to quality. Venture capitalists will want to invest more in the companies that look like they're going to be successful and be a little less willing to take fliers on things that are hard to really handicap.
"If the financing environment changes," Wilson added, "we'll try to take advantage of that and invest in companies at lower valuations than we would otherwise be paying."
