When I make an investment, I don't want to prolong an inevitable failure, I want to give a company the capital necessary to take the vital steps to profitability. Bridge loans have been used to bait VCs, and unfortunately some have gotten burnt when the rollover financing didn't happen. This is not to say that the venture capital community is out of money. I think that the coffers are quite plentiful, but an inherent change is coming. In my arena, funds are raised based on past performance, so the new entrants in 2000 who underperformed will not be able to raise new funds.
Experience is essential in a space where solid information and research is hard to access.
In our own fund, Dalewood Associates, we managed to squeak out a profit in 2000, which was quite an accomplishment in a collapsing tech market. If you were conservative in your valuations and tough on flimsy business models, you managed not to get killed by the dot-com disaster. The IPO market is a great barometer for the profitability of early stage investments, and I believe that the IPO market in first quarter 2001 will slowly gain momentum coming into March. I am beginning to get a feeling that the sell-off in 3Q and 4Q 2000 created an oversold condition. Investors booking solid gains in the month of January will ignite some other weary players to come off the sidelines.