VC Rest Stop

I remembered a conversation with Cliff Higgerson, formerly in charge of research at Hambrecht & Quist, a San Francisco Investment Bank. He had lectured at Leo Helzel’s Entrepreneurship class at Berkeley. Cliff left H&Q to start his own firm, Communication Ventures. He had done well, largely due to a couple of good hits. Almost all his investments had made money.
At an investment conference in the South Bay, Cliff was presenting a session about the heady valuations and the difficulties they presented. “Cliff,” I asked, as if an old chum, “Have you or other venture investors ever thought of just sitting it out until valuations come back down to earth?”
He looked a bit puzzled, then replied: “I don’t see how anyone could do that. You are either investing or not. I don’t think sitting on the sidelines would be a viable strategy.”
Okay, put me in my place! Still, we all knew this pace, this level of valuation was unsustainable. What soared so high had to come down; why not be standing by with dry powder to pick up good deals when gravity won out?
From a VC’s point of view, he would have to justify a management fee and keep an active posture. If you weren’t gambling, someone would ask for your seat at the table and they’d stop giving you free drinks. However sane the strategy of sidelining, it was not tenable for a reputable VC. Even if some of your peers respected you for your restraint, you wouldn’t be a mover and shaker. How fun was that?