This SiliconBeat piece caught my attention because of the following quote:
Looks like deals are flying at every level. Here's our story today about how buyout action is likely to continue in Silicon Valley. The pace of venture deals isn't too shabby, either. Bob Kagle, venture capitalist at Benchmark and an early backer of eBay, recently told us: "Venture industry activity has really picked up over the last few months. Decision cycles are speeding up, valuation levels are going up, and due diligence is going down." Here's why.
Add another elements, such as $54B in US venture capital overhang (VentureWire, sub req), the much published "built to flip" alternate model, and the fact that many funds have fresh capital to invest (about $18B, to be precise).
The result ? A potentially risky environment where funds compete to get in "hot" deals, not doing a proper job to due diligence all aspects of the business/market/team/technology/products/... because someone else might get the guns out more quickly and take the deal off the table. Therefore funding companies that might not warrant it, from a venture capital perspective.
I find price competition less of an issue (I am working on the side of entrepreneurs these days, you can see it :-) provided that it remains reasonable. I heard that SugarCRM's Series B was a dog fight between top funds, and therefore they got a great deal for their $5.75M. Good for them. And if the company is successful, will it matter that investors got 25 or 20% for their money ? Not really.
What would be most worrying, would be to see well funded FlourCRM and EggCRM popping up in the next few months, based on similar concepts, with a twist or two (of course, you need the twists to invoke the mighty differentation factor). This would mean that we're back to "me too's" funding at scale. And that does not help anybody.
And yes, Google is the perfect counter-example, where KP and Sequoia plunked $25M at $50M pre- in an overcrowded space, figured out a killer business model, and got $B out of it. But how many Google's are out there ?
So, no "me too's" please.
PS: Fred Wilson has a similar spin: drink responsibly.