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Greece, China Volatility Won't Hurt Venture Funding ... For Now

Keep the good times rolling and the money flowing.

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Greece’s financial system is on the verge of collapse and China’s stock market continues its free fall. What does that mean for Silicon Valley? Not much.

Venture capital firms in the midst of raising their next funds aren’t seeing any ripple effects from the volatility abroad, according to some investors.

Why is that? The funds are largely fueled by university endowments, insurance companies and large pension funds — known as limited partners, or LPs — and they tend to stay away from volatile investments.

“It would take six months for those shocks to reverberate down and out to LPs,” said investor Jason Lemkin, who recently helped his firm, Storm Ventures, raise its fifth fund. Another investor, who asked to go unnamed because he’s still in the process of raising, also told Re/code the instability in China and Greece hasn’t scared LPs away.

Venture is a very small piece of LPs’ portfolios. They tend to invest only 1 percent to 7 percent in startups, putting the rest in more conservative properties like real estate, oil contracts or the stock market.

“Venture is the attempt to goose the funds in a portfolio just a smidge,” Lemkin said. “It’s not like Harvard’s endowment is 100 percent in venture.” Also, LPs invest in VCs knowing they have a 12-year run rate before they can see their money again, so they’re unlikely to be rocked by moment-to-moment changes in the international markets.

“It depends on where the fund has exposure geographically,” Semil Shah, an investor in seed fund Haystack, said. “If they have exposure in parts of Asia or Europe that may make them concerned, but professional LPs are also long-term investors and understand the venture asset class will go through ups and downs.”

Investment in Silicon Valley technology is unlikely to change unless the Greece-China effects hit the American market.

“The real issue isn’t Greece and China — the real issue is what happens when the Nasdaq makes a 30 percent [market] correction,” Lemkin said. “Until the Nasdaq falls, I don’t think LPs will change the way they view venture.”

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