Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
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Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#2I admit that what follows is tangential to the post. However, as a freelance developer who, of late, works for startups, I've been mulling this a great deal.
Startups are acquiring money from somewhere. While VCs may be raising less funds and funding fewer startups, the demand for technical hires is soaring! In my particular areas of expertise, Ruby and Ruby on Rails, demand seems, frankly insane.
So what's going on? If there's less VC money in play, unless people are exiting the software development market faster than new people are coming in, one would expect that we software developers would be suffering employment issues like the rest of the US.
And yet I know extremely few Ruby on Rails developers who are wanting for work.
Is it perhaps that my perspective is limited? I know a fairly large group of developers. The only ones who are looking for working (and we're always looking for that next gig) are freelancers.
Is this the Google/Facebook "brain-drain" effect at work? That these megaliths have hired so many of the talented people that, despite reduced VC funding, startups are still suffering hiring issues?
What gives?
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#3I admit that what follows is tangential to the post. However, as a freelance developer who, of late, works for startups, I've been mulling this a great deal. Startups are acquiring money from somewhere. While VCs may be raising less funds and funding fewer startups, the demand for technical hires is soaring! In my particular areas of expertise, Ruby and Ruby on Rails, demand seems, frankly insane. So what's going on?…
Before the majority of the investment went towards capital expenses to build infrastructure. Now most of the invested capital goes towards salaries for the development of the idea.
If the idea is successful then cloud computing is utilized to grow the business. If sufficient scale is reached then you'll see companies take large late rounds to build their own data centers and infrastructure out (such as Zynga and Facebook).
So while total invested dollars are down, the cost to invest is down significantly and "big money" doesn't need to be spent until you know you have a success. VCs are poised to make much better returns over the next decade if they manage their funds correctly.
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#4Lack of huge upfront $$ to cloud an idea's success is not a problem.
I think it is good for a CEO to start from scratch (relative term, but..), since it teaches some important core business principles that many seems to be oblivious to. Like, make more money than you spend. Immediately.
One of the things I really enjoy that comes out of 37Signals is their Bootstrapped, Profitable, & Proud Blog.
Those posts hit the spot every time for me.
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#5The "angel investors won't make up the slack" part wasn't totally convincing. It might be true, but quoting average investment by a single angel versus a single VC isn't really the important number. It'd be more convincing to see aggregate figures: total VC dollars are down $x billion, are angel dollars up more or less than that amount? The article quotes figures for total VC dollars, but none for total angel dollars.
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#6I admit that what follows is tangential to the post. However, as a freelance developer who, of late, works for startups, I've been mulling this a great deal. Startups are acquiring money from somewhere. While VCs may be raising less funds and funding fewer startups, the demand for technical hires is soaring! In my particular areas of expertise, Ruby and Ruby on Rails, demand seems, frankly insane. So what's going on?…
Before the majority of the investment went towards capital expenses to build infrastructure. Now most of the invested capital goes towards salaries for the development of the idea. If the idea is successful then cloud computing is utilized to grow the business. If sufficient scale is reached then you'll see companies take large late rounds to build their own data centers and infrastructure out (such as Zynga and Face…
Ah, thanks. I hadn't considered just how much cheaper cloud computing is making starting a business -- even though I've actually experienced same myself. Excellent points!
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#7The majority of the statistical data used to support the article's thesis is from 2009. The effects of the financial crisis of 2008 obviously had a major impact on investment decisions and results. If we choose a different metric for how to measure the opportunities for entrepreneurs, real world economic potential, the ongoing growth trends of social networking services, new internet based businesses like Groupon, and the explosion of mobile device app markets demonstrate that tech sector investments still have massive upside potential.
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#8I admit that what follows is tangential to the post. However, as a freelance developer who, of late, works for startups, I've been mulling this a great deal. Startups are acquiring money from somewhere. While VCs may be raising less funds and funding fewer startups, the demand for technical hires is soaring! In my particular areas of expertise, Ruby and Ruby on Rails, demand seems, frankly insane. So what's going on?…
We need to remember that Ruby on Rails is still a relatively obscure technology in the grand scheme of things. The average CS grad straight out of college does not know RoR. Most of them are looking for jobs with Java, PHP or some other language they learned in school. The demand for Ruby on Rails developers is greater than the supply. I don't think it has anything to do with VC funding.
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#9Several people have remarked that this doesn't seem to be affecting technology entrepreneurship much, which seems true from what I've seen of software technology startups in my area. However, not being able to get funding profoundly impacts other types of startups that have higher initial/research/production costs: green energy, manufacturing, basically anything that isn't just a website and iPhone app. And that's really a bad thing, because it seems that far too many entrepreneurs are now going the cool webapp/facebook plugin route because there's a seemingly high potential for profit in the area. But honestly, we need non-software startups too, and for that we need venture capital!
Re: Venture Capitalists' Failure to Make Money is a Problem for Entrepreneurs
#10If all else were equal, I would agree. Less money to invest means less money invested.
However the cost of doing a startup has also gone down. By more than the availability of venture capital. Therefore more startups can get going. Also companies like Facebook and Google have more willingness than companies had in the past to buy small companies that otherwise might be looking for venture capital.
When you put these factors in, it is not at all clear to me that the situation is worse for entrepreneurs.