On June 12, NextView co-founder and partner Lee Hower sat on a panel at Boston’s State of Innovation. This is a quick recap of the discussion between notable VCs and founders around town.

“We put the VCs in the corner.”

And with that, Greg Gomer, SVP of Distribution at BostInno, kicked off the panel exploring the state of Boston venture capital.

He was joking, but the breakout session did indeed set up a compelling dynamic, with VCs sitting to one side and entrepreneurs and founders on the other. Joining Gomer on the panel were:

Here’s some of the conversation that transpired:

Are we in a bubble?

Lee Hower: Five years ago, we were coming out of the throes of one of the worst recessions we’ve seen. Now, venture-backed companies are going public, we’re seeing some good exits and lots of liquidity in the ecosystem. I don’t think it matters — bubble, not a bubble. First, look at different parts of the ecosystem. What’s happening at the seed-stage where NextView focuses is different than what’s happening at companies like Uber.

Our view at NextView is that there’s a ton of real opportunity right now. It’s probably a bull market: Valuations are healthy within the seed to mid-stage market. I don’t see a ton of anything that’s unsustainable.

Now, with our first fund [from 2010], a seed round was up to around $1 million, then it moved up to $1.4 or $1.5 million. Today, you’re seeing upwards of $2 million.
The best companies are thinking about raising a little more capital upfront to reach important milestones.

Ryan Moore: Valuation is a function of supply and demand. There’s a lot of money in seed, and lots of money when you don’t need money in later stages. If the unit economic model that people present actually justifies the valuations, and there’s a lot of demand and a lot of investors that puts this at a premium, then it might not be a bubble.

In the middle rounds is where it gets fuzzy, with Series A and certainly B and C.

Jamie Goldstein: I have no idea if we’re in a bubble, but my advice to entrepreneurs is not to worry about figuring it out. Companies are loading up with capital because it’s cheap and easy to do so, but the key is not to spend it. Be smart and don’t blow through it. Things might turn back down, and you’ll wish you’d saved every penny you could.

In seed, we loan people money and roll into their Series A round, which is our specialty. We don’t mind the size of seed either, whether it’s $250-500K, $1 million, or higher.

Andy Palmer: It’s not a bubble; it’s a rollercoaster. “Bubble” is wrong. It’s a cycle. Smart entrepreneurs take advantage of the cycle in order to do what they need to do. It’s up right now and it’ll go down again, but then it’ll go back up.

How should entrepreneurs think about raising capital in this climate? Spaced out over milestones? Up front?

Andy Palmer: The goal of fundraising is to limit dilution of your common shareholders. What keeps good entrepreneurs honest is when you raise at a good valuation and you set amazing expectations: You better have unit economics to justify those valuations and expectations eventually. But right now, if you have a great idea or a great business and need to raise money to execute, my advice is to raise now, get a good valuation, limit dilution to common shareholders, and put in bank. Don’t spend it.

Brent Grinna: My only concern is that the HBO show Silicon Valley show exists and so many people have seen it. Compare that to the thought of that show even being produced four years ago. EverTrue got started in 2010 — just coming out of the “RIP Good Times” days. It wasn’t too hot around town. Being a part of TechStars, I watch their program and see a similar cohort of companies go through this each year. So if you take the same team, the same traction, and the same market opportunity in 2014 [compared to 2010], it radically changes what the amount of capital might be today.

It’s definitely improved a lot now though. It was frustrating when raising seed in 2010 or ’11. It was RIP Good Times.

[Tweet “”Startups are babies. And sometimes, if you give little kids lots of money, bad things happen.””]

Bryant McBride: For context, I’m in a situation where I’ve done seven startups, and I’ve never raised VC money. I’ve been fortunate to work with a group of high net worth individuals and get creative and find strategic partnerships over time. I’ve also been lucky to have some quick exits. Everyone talks about seed-stage and later, but the way I look at this game is that startups are babies. They’re little kids. And you gotta make sure you never run out of food, take care of them, love them with all your soul…but sometimes, if you give a little kid lots of money, bad things happen.

Is it a bubble? I just think the bar’s higher. Ryan’s point on the middle being tough is right. But there were really BS valuations from 1999-2001 — it was a travesty. Lots of money was thrown around with very little diligence it seems. Those days have not returned.

So in terms of raising capital or funding your startup, I say you gotta get creative.

With so much going towards seed and Series A, is there enough capital to raise Series B and C?

Jamie: West Coast VCs are coming to Boston to fund our companies. I think there are great companies being built here with great teams and very unique value props, and west coast VCs are coming here because, out west, it’s so overrun. It’s very hard for people to hire high quality groups and build out teams there. They come here and see great teams and innovative ideas and they’re piling in.

Lee: NextView invests throughout the US, but 80% of our portfolio is Boston and New York, with just over half of that in Boston. We have companies now in the A, B, C round stages, and there’s still a lot of A round capital here. But it’s probably less than 10 or 15 years ago. Many of the great businesses being built here are attracting interest beyond Boston, out to California, when they raise later rounds.

To Ryan’s point, the VC ecosystem throughout the entire US has gone through upheaval in the last 10 years. In 2005 to ’08, we were asking, “Why hasn’t there been a shakeup of the ecosystem?” And now it’s happened, where some firms went through generational shifts, some have evolved with new strategies, old firms die, and new firms are born. The Boston VC ecosystem is still quite healthy in my opinion, but it’s different from what it was even five or 10 years ago. The number of firms writing big B or C round checks is still ample but less than before.

Ryan: We’re 30 years into this [at Atlas Venture], so we have real data, and what the LPs have realized is you need to have big companies to return venture funds. It’s all around “unicorns” as they say. And this is a town that has not produced a lot of unicorns, and that’s the challenge. You’re starting to feel a little bit of a squeeze and pressure. Is the underlying VC community healthy enough to support those to happen? The jury’s out still. We need to face it, and I think we’ll get through it, but it’s still the reality.

Lee: There’s a healthy stable of attractive late-stage companies here in Boston, but the institutional LP lens is to look at what big exits have happened in the last 5 years. We didn’t have the Facebooks here. We had TripAdvisor, Kayak, Endeca — your billion-plus exits — but not the $10 billion exits you’ve seen in the Valley in the last 5 years. But if you look around, there are a bunch of great companies here that will be public companies. But they may not be in the next zero to 2 years.

Andy: At the core of our challenge here is not having big independent companies. The wherewithal you need as a founder, when someone comes to you with a billion-dollar check, to say, “That’s nice, but we’re gonna be worth $10 billion,” — to avoid New England conservatism and think that we’re gonna go all the way — that’s really hard!

Building independent companies has to be what this is all about. Our goal has to be build them. Wayfair is a great example: If we can have it go all the way and not get sold to Amazon or Google, awesome! Same idea for Akamai. We need 10 Akamais in the next 10 years. That is what we need in Boston.

How’s the ecosystem for raising money overall?

Bryant: Facebook has been such a watershed company in so many ways. One of the impacts I’ve seen is the huge influx of startups. Being taken seriously in this game, as someone who’s done this a long time, has been so important but strange. It’s being able to say, no really, I’ve done this several times and sold these companies and everyone made money. Because so often most startups are built by first-time founders thanks to Facebook. So more startups makes it tougher as a founder to set yourself and your idea and team apart.

Another trend is the amount of money you need to get going. When I invested in FanNation [which sold to Sports Illustrated], we raised $1.2 million, and I kept telling the guys to maybe raise more. I wanted to put more in. But they wound up spending only $600K to sell, and that was mind-blowing back then. Now you can push the spending down even further.

The last trend is that tech press is very different than it used to be. Everyone’s breathless that this or that startup is a rocketship. But 98% are NOT rocketships. You gotta iterate, figure it out, grind, have your sleepless nights, until that lightbulb comes on. It’s taken Burst 3 years, and we had an inflection point literally last month.

Out west, if your team looks around and thinks it’s not a rocketship, they’ll leave to find another rocketship, when they should realize that that’s not the game. You gotta grind, gotta figure it out, suffer a bit, suffer some more, until it clicks.

Andy: One trend in the last 5 years is that people have moved into Boston and Cambridge, which is fantastic. Whether it’s Founder Collective or Project 11 or NextView or Boston Seed, these are great folks, and the beauty of raising money from those institutional seeds is that you get rid of this signaling problem you get taking seed from later stage firms if they decide not to invest in you later on.

There’s a new dynamic in Boston which is institutional seed funds which complement the work that super angels are doing — that’s absolutely essential. There’s more intellectual content laying around on the ground in Cambridge with all our schools than anywhere else in the world. We have a unique set of really smart people and freshly minted PhDs and undergrads every single year.

If Silicon Valley had the intellectual quality and quantity that we have, they would have 10 times the companies that we have here in Boston. We need to push that and encourage that.

[Tweet “”Avoiding New Eng conservatism & thinking we’re going all the way, that’s hard!” @AndyHPalmer”]