Russian Translation:
http://www.web30.ru/2008/12/07/mogut-li-venchurnye-kapitalis...
Could VC be a Casualty of the Recession?
131–140 of 152 posts
Re: Could VC be a Casualty of the Recession?
#132Re: Could VC be a Casualty of the Recession?
#133This is something that I've thought about for the last several years. I think that this article should mention that what is meant by VC is really "VC for web companies". What I suspect will happen is that there will be fewer and fewer web companies (with good ideas and the need for large capital) that need funding, and it will make more sense for VC's to invest in startups that are in more capital-intensive sectors like energy and biotechnology.
Re: Could VC be a Casualty of the Recession?
#134Its more than the recession. Its the next revolution. We have microtized/DIY everything. VC's are just one of those that is both a casualty and a cause.
Wrote about his over two years ago but re-posted recently at www.flairjax.com
Re: Could VC be a Casualty of the Recession?
#135This is a good question.
I think that VC in its current form will be a casualty of the recession. In its current form, the VC grabs a chunk of cash as a management fee, and another chunk of cash to put "adult supervision" of seasoned executives on the management team. Also, VCs are not able to manage the kinds of small investments that startups need because VC partners have limited time. Because their of their high overheads in the form of management fees, "adult supervision" the small investments simply will no longer pay them what they need to profit. Therefore, from that perspective, I think that VCs are going to be forced out of the web startup sector.
In addition, they will also get booted out of sectors that use successful web startups to bootstrap other kinds of businesses. Let's face it...just as you can use a consulting business to bootstrap a company, you can also use a successful web startup to do the same.
I think that a new trend that will emerge is that large enterprises will start buying up web startups to take over the product for use in their internal operations. Think of it...suppose you are a large enterprise who wants to build some fancy web based software to improve some business process. You have a choice between funding an internal group that may take 12 months using "Cadillac" components and cost $600k , or you could just troll the 'net and look for a startup that does something similar and buy them up for $300k, which gives them rights to working software and the talents of the developers (using appropriate golden handcuffs). It also gives YC a the proverbial 10x return on its proverbial $15k investment and each of the proverbial 3 founders a $50k equity bonus. This will diminish the influence of VCs because web startups that have taken in even a million in VC funding will not be able to sell out for less than $10 million...a price too high for enterprises to spend on business process improvement.
Re: Could VC be a Casualty of the Recession?
#136Earlier quoted context omitted.
but greentech will require more funding per instance than any VC firm will be able or willing to put up. show me the VC firm that is going to put over $1 billion into any single investment...when it comes to nuclear or hydrogen, a billion might only bootstrap the company. these industries are going to need massive amounts of funding. only one entity can do it - uncle sam, DARPA and the DOE
If you believe Al Gore, for $90MM you can build a giant New Mexico wind/solar farm that would supply enough electricity to power the entire US. (It's been a while since I saw the presentation so some details might be wrong but I am at least in the ballpark, especially regarding the price tag). Seems like 10 VC firms could easily get that sort of money together.
> If you believe Al Gore, for $90MM you can build a giant New Mexico wind/solar farm that would supply enough electricity to power the entire US.
Al Gore has over $100M. If he isn't doing that....
Re: Could VC be a Casualty of the Recession?
#137Re: Could VC be a Casualty of the Recession?
#138Earlier quoted context omitted.
I don't get this argument. Assign the top ten companies as high a percentage of whatever as you like: it won't prevent people from seizing opportunity to create value at a higher rate than large organizations are able to do. The point is that the two barriers that largely prevented talented people from doing so in the past - cost of entry and cultural beliefs - don't hold sway anymore. The fact that some markets have…
The problem is, "low cost of entry" is just another way of saying "commoditization". Your argument depends on the assumption that because it's cheaper to produce a website than (say) a motherboard, it's therefore going to be easier to create a valuable website. That's wrong. Ultimately, there's no strategic advantage to be gained by entering an industry where the barrier to entry is so low that everyone can do it. Wh…
Low cost of entry means anyone can try any number of ideas with minimal investment. Commoditization means all of those ideas will be the same, thereby lowering the value of the idea.
They are not the same thing.
Re: Could VC be a Casualty of the Recession?
#139Although web software companies can easily grow with small investments, hardware companies are a different story. Saas can make it easily with no help but if we are looking for an apple, a super android phone, a new sidekick or another AMD VCs better keep writing big checks.
Re: Could VC be a Casualty of the Recession?
#140I'm honestly surprised that it's taken you this long to go out and say this. I've loved reading your articles and essays about startups, and I've soaked up all of it, but one of your big topics is dealing with investors. I've talked with a lot of entrepreneurs, and bootstrapping seems to slow things down slightly, but with the technology available as cheaply as it is, living expenses are the biggest thing, and if people can figure out how to live on the margin, they could launch a startup on next to no money at all.