Tweet

Questions From A Regional Federal Reserve Bank

Written by: Brad Feld

Article Overview: I have a friend who sits on the board of one of the regional Federal Reserve Banks who sent me the following email the other day.

Questions From A Regional Federal Reserve Bank

I have a friend who sits on the board of one of the regional Federal Reserve Banks who sent me the following email the other day.

The Fed Governors asked me to report on these questions at our upcoming meeting:

* Were VC firms so scared when the “new economy” bubble burst that they are now excessively cautious?
* Is there still an overhang of unused/underutilized capital remaining from that period?
* Has the lack of a “killer application” held back investment?
* How can it be in shareholders’ interests to continue to hold very large amounts of cash?
* What investments are venture capital and private equity firms making in this environment?

My response follows:

First - have you seen the NVCA stats? They are spectacular if you are looking at macro trends (which these questions seem to address.)

- Excessively cautious? No way - if anything, the early stage VC business has once again shifted into a more aggressive zone. Stage segmentation is critical to asking this question in a way that makes sense - early stage firms are very active right now.

- Overhang from the bubble? Not really - most of this has been cleaned out at this point since the overhang came from funds that were raised in 1999 and 2000 (there were very few funds raised in 2001 - 2003). Since the investment period on these funds is typically five years (sometimes extended to six) most of the overhang money has been invested.

- Killer Application? If anything, the opposite is happening. VCs are aggressively investing in Web 2.0, mobile, gaming, SaaS, open source, and consumer applications. There are plenty of investments in "technology searching for a market" and "the seventh thing that looks like X" going on. Killer apps - at least in the eyes of the early stage VC - exist everywhere.

- Shareholders Interest / Cash? I'm not sure I really understand this question. Which shareholders? Remember that most VC funds are private limited partnerships. As a result, they are not holding large amounts of cash - the cash is "committed" to them but they only draw it down as they invest it.

- What investments are VC's making? Lots. All the traditional software and Internet segments are very active. Consumer technology has had a resurgence. Enterprise software is being focused on SaaS (Software As A Service) and open source. Telecomm equipment has started to come back. Cleantech is all the rage. International investing - named China and India - are overwhelmingly popular.

My friend responded that “The Fed actually seems to know little about venture investing. I think I am the only director in the entire system with an early-stage background.” If this is true, it’s a terrifying idea.

Read this article on Brad's blog.

Related Articles
  How To Create Money
  A Financial Conspiracy Of The Largest Magnitude Is At The Root Of Today's Economic Crisis!
  Wall Street Got $1.2 Trillion From Fed
  Has The Reserve Bank of NZ lost its effectiveness?
  Lesson #4: Don’t Let Anyone Keep Your Ambitions in Check

Article Tags: asking this question, consumer applications, economy bubble, fed governors, federal reserve, federal reserve banks, investment period, killer application, macro trends, mobile gaming, new economy, nvca, overhang, private equity firms, regional federal reserve, segmentation, stage firms, upcoming meeting, vc firms, vc funds



Related Forum Posts
Should FDIC Worry about FHLB? - What do you think the impact would be on the Bank Insurance Fund with Federal Home Loan Advances for business? Especially since you can obtain a grant when used in combination with FHLB advance. The grant can be used for anything you want for your business (down payment to a seller or franchise fees, working capital...etc.) This puts the borrower in a pretty good position. Should FDIC worry about FHLB?
You can see my Bank statement......... - Hi there, Today we are bombarded with 'Business Opportunities' by the multitude. I believe it is possible to earn a lot through the internet, but it is hard work. Nobody gets it very easy on a long term basis. [b][b]How much notice do people take[/b], [/b]when the Bank Statements are shown as means of 'how credible' their business idea is? Are they always totally true? They look authentic. The whole industry is growing rapidly. What is your experience? Is there any regulation in presenting the 'Bank Statement' or other statements from 'Click Bank' etc ? Kindest Regards Beat "Unlock People's Potentials!"
Re: Should FDIC Worry about FHLB? - [quote="BizLoanz4u":3cde91n6]What do you think the impact would be on the Bank Insurance Fund with Federal Home Loan Advances for business? Especially since you can obtain a grant when used in combination with FHLB advance. The grant can be used for anything you want for your business (down payment to a seller or franchise fees, working capital...etc.) This puts the borrower in a pretty good position. Should FDIC worry about FHLB?[/quote:3cde91n6] Hi Michele, Could you first tell us a little more detail about both organizations?
BDC - [quote="IWDCanada":jib6tqt9]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:jib6tqt9] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.
Re: BDC - [quote="Jones":255lkmrn][quote="IWDCanada":255lkmrn]I think if you try to do business in the Maritimes the Business Development Bank of Canada might be able to provide grants.[/quote:255lkmrn] On that note, does anybody have any experiences with the Business Development Bank of Canada that they would like to share? I have been considering approaching them for a business loan.[/quote:255lkmrn] I'll be working with the BDC later this month on a few projects. From what i've been told they are really great when it comes to small business. Their loans have a little higher interest but their payment terms are a lot easier to swallow. I can give you a contact if you need.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

A New Year in the Pharmaceutical Industry

How to Write Your Articles for Better SEO

Download a template or see a lawyer?

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.