VC in 2013: The Potential of Small Business —WSJ Venture Capital Dispatch

An Interview with Jeremy Levine, a Partner at Bessemer Venture Partners

As the new year begins, the Wall Street Journal’s Venture Capital Dispatch — which focuses largely on high-tech start-ups and their investors — has asked several venture capital investors to reflect on the past year and give us their outlook for 2013.  Recently, it spoke with Jeremy Levine, a partner at Bessemer Venture Partners.

Levine speaks about the return of sanity to venture markets, the need not to overreact to recent investment trends, and the potential in offerings for small businesses.

Looking back, how would you characterize 2012?

This was a year in which balance was largely restored.  During the first half of the year, froth was everywhere–especially in the seed and growth equity markets. We saw sky-high valuations and generous terms occasionally involving massive amounts of secondary selling.   By the end of the year, however, some investors’ fingers had been burned in the froth related to late, pre-IPO stock purchases at Groupon, Zynga and even Facebook, which ushered sanity back into the venture markets. This is especially true for “classic” Series A venture capital where a reasonable volume of deals is now getting funded at reasonable prices.

What is the most important issue that the venture capital industry faces in 2013?

In 2013, the industry needs to be careful not to overreact to recent years’ mistakes. We witnessed such an overreaction in the early 2000s when many venture capitalists went from being gaga about every dot-com startup under the sun in 1999 to applying the post-bubble label of “dot bomb” to anything Internet-related just a year later.  Yet in hindsight, the early 2000s were a fantastic time to invest in new Internet startups (LinkedIn – 2003; Facebook, Yelp – 2004; YouTube – 2005). With the current chatter about a shift away from ‘consumer’ toward ‘enterprise’ startups, perhaps we are about to witness a repeat of the industry’s bubble era overreaction.

What do you see as the biggest investment opportunity for venture capital in 2013?

Over the last several years, we have observed that the number of compelling new consumer Internet and mobile offerings has exploded. We are predicting that during the next few years, it will be small businesses’ turn.

The innovations in software UI, online distribution and application development will drive massive new software offerings for small businesses. Historically, only the world’s largest corporations have been able to afford most productivity-enhancing software, but now even the smallest businesses will have a chance to get in on the action.  Young web-based software companies such as Mindbody (for wellness businesses like yoga studios and hair salons), Xtime (for auto dealers) and Shopify (for mom-and-pop retailers) are helping small businesses access world-class technology for just a few hundred dollars per month, and in doing so, they’re experiencing tremendous growth that rivals anything we have seen in any of the hundreds of companies we have backed over the decades.

Read the whole piece here. 

Venture Capital Trends and Predictions, 2013

see also:

• Venture Capital to Suppress Its Appetite for Risk in 2013
• Venture Capital Fundraising Was Flat in 2012
• VC in 2013: Trident’s John Moragne on Finding Opportunity in ‘Big Problems’
• Is Valuing a Young Start-Up More Art or Science?