For those reading that don’t know me, I work in the venture capital group at the Hearst Corporation. We play the role of a patient, growth capital investor for startups looking for validation from (and partnerships with) a traditional media company. As a result, the majority of our capital is invested in Series B and Series C rounds in startups that have been operating for at least a 18 to 24 months.

As I look at the market today, this positioning is proving quite difficult for a couple of reasons. The first has to do with the troubled nature of traditional media companies no longer makes them as attractive a validation partner for entrepreneurs. Additionally, with the fragmented nature of the Internet, a deal with any single media company can no longer “make” a startup’s business. While not the case with Hearst, some budget constrained media companies will even invest in a startup to use it as a captive development shop, making the partnership an albatross for an entrepreneur with limited resources him/herself.

While the above issues are hurdles, the biggest challenge my group is currently facing is the “it gets late early” phenomenon. The truth is that it costs very little to start an Internet business these days. Thus, by the time a promising startup needs to raise even its Series B, it has already generated a fair amount of user adoption and can drum up a very competitive financing process. As a result, instead of $15-20m Series B pre-money valuations, we are seeing $50m and even $100m+ valuations. Keep in mind that most of these companies still have very little revenue and are yet to develop clearly defined business models.

With the recent explosion in seed/Series A funds and the significant later-stage money still in the market, I expect valuations in B rounds to get bid up aggressively for at least the next 12 months. However, the supply of quality early-stage companies should increase and I expect this to drive prices down to more reasonable levels. Will Series B valuations in promising startups return to levels from a few years ago? Unlikely given it simply costs less to initially fund a digital media startup. But if you believe a business is a several hundred (or billion) dollar opportunity, there should still be enough returns to go around.

As a result of these market conditions explained above, I find myself spending more time building relationships with entrepreneurs than chasing live deals. Hopefully, when/if the market returns to a more rational equilibrium, this work will pay off. Only time will tell I guess.