A question I have been asked in my series on the brewing bubble in SuperAngel deals (and funds!) is why the traditional VCs are getting into auctions for the hot deals.

Jeff Bussgang guest blogging at VentureBeat has an interesting perspective about how in the New Normal for Venture Capital, with too much money chasing too few exits, the founders have all the leverage.

He uses colorful metaphors of sheep and wolves, which I think can overshadow the dynamic. The strategy for large VC funds in the New Normal is to put all their eggs in a few promising deals that could go IPO. They often express this as “we are in the business of funding great companies, not quick flips.” There is nothing wrong with this, and indeed is the strategy of the top funds over the past 30 years – they would prefer to fund great entrepreneurs and build an Apple or Sun rather than sell out early. In order for this to work in an era of few IPOs, however, they need to be in the hot deals and get as much ownership as they can.

When they collectively hop on this strategy, the deals get bid up.