Corrected on 09/22/2008: An earlier version of this blog post incorrectly reported the maximum company revenues as $1 million. The maximum is $100 million.
When I last wrote about venture capital, I gave the impression that the outlook was not good. The financial crisis currently rocking Wall Street obviously does not make the situation better and will probably make it harder for venture capitalists to raise money. But that's the short-run picture—in the long run, the changes in the financial sector this crisis will bring about could shift things in a beneficial way for venture capitalists. I just talked to Faysal Sohail, managing director for CMEA Ventures in San Francisco, a firm that invests in life sciences, high technology, and energy. Here are his thoughts:
Our view is that there are going to be stronger, smaller banks that are going to pop out of this chaos that would be better equipped to work with our early-stage startups and growing companies to take them public.
I've been doing this for 20-some years. I've built three companies as an entrepreneur and taken them public or sold them. There used to be very strong setup boutique banks that used to do a lot of the IPOs for the emerging companies backed by venture capitalists. In the last 20 years they've disappeared and been absorbed into larger banks. It's going to provide an interesting opportunity for some of these banks to come back.
So why are smaller boutique banks better for venture capitalists?
When you have very large banks, the transactions that they have to do to make money have to be very large. For them to provide research they have to cover very large market sectors and very large companies. But mostly venture capitalists work with smaller companies. We're working with companies with zero to $100 million revenues. What we find with smaller banks is that they have deep research and deep expertise.
The Deal has more.