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Quest Venture Partners: Current VC investing not “irrational”

The hand-wringing continues over whether or not there is a venture capital bubble forming around hot new Silicon Valley startups. But the increased VC investing in tech is more likely the consequence of investors burned by the stock market getting into alternative investments, Marcus Ogawa, managing partner at venture capital firm Quest Venture Partners, told me today.

“Is there more capital flowing into investments? Yes. Are valuations increasing as a consequence? Yes. Would I call it a ‘bubble’? Depends, but it certainly doesn’t feel irrational,” said Ogawa (pictured).

“I feel what we are ultimately observing is a direct result of prolonged and depressed interest rates flooding the market with cheap capital,” he said.

Quest, or QVP, typically aims to deliver the first round of institutional investment in early stage companies, investing $100,000 to $1.5 million, with a “sweet spot” around $500,000.

Within three years of forming the fund in 2008, QVP has paid out in distributions to its partners nearly double its $10 million principal through exits like Qik and Tapulous.

It says two-thirds of its investment capital remains outstanding in startups including CrowdFlower, Sociable Labs, Retailigence.

Ogawa said that although the data is mixed over whether VC investing is declining or creating massive valuations of some marquee-name companies, investors hungry for new ways to make money are going to continue looking to tech startups.

“A continued sense of instability in the public markets and a decline in the purchasing power of [the U.S. dollar] have led many wealthy individuals to seek alternative investment vehicles, and [they’re] asking themselves, ‘If I’m going to take the risk anyhow, why not take it where the returns can yield exponential returns?'” he said.

Ogawa said this increased interest has “reverberated up the chain,” causing prices across the board to increase. Whether that reverberation is unhealthy remains to be seen, he said.

“I think it’s great for innovation, terrible for returns on investments,” said Ogawa. “Ultimately, I think many weekend warrior type angels will suffer, but I don’t think their behavior is irrational given the alternatives.”