Great Post from Peter Hebert
Simply put: markets work by supply and demand. VCs convert cash into a supply of stakes in startups. Mr. Market either seeks those stakes with demand or doesn’t. Just like the real economy, customers buy products or they don’t. What’s unsold is inventory stranded on balance sheets.
There may be hope for increasing demand for stakes in startup. A less sombre article from DailyFinance: http://srph.it/bFl6f0
Another piece of fairly good news is that the 10 largest technology companies have $150 billion in cash that they're using to buy faster-growing startups. A lucky few have been able to sell their companies to these corporate buyers. But very few startups can satisfy the standards of today's IPO investors or corporate acquirers.
This leaves a third way for VCs to turn their investments into cash -- the secondary market, which pays cash for shares of private companies. For the most part, this works for well-established private companies like Facebook when people who leave the company decide they want to cash out their shares. According to Barry Silbert, CEO of SecondMarket, which runs a market for cashing out private shares, a company like Facebook can work with his company to set up a so-called Dutch auction for selling some shares.
