There has been much discussion in the past few years of the changing structure of the venture capital industry.
On the surface the narratives have been
The rise of “micro VCs” or seed-stage funds
The rise of alternative sources of capital (crowd funding and the like)
The poor performance of the asset class (this analysis has largely been wrong as I pointed out here –> most analyses were clumsy rear-view mirror looks at the data)
We are in a bubble (with so many private $1bn+ valuations)
15 years ago we were at the peak of Internet hype with the launch of many over-capitalized businesses with a market size & opportunity was limited.
Where are we today?
50x more Internet users (2.4 billion)
Online connections that are 180x faster (10.5 Mbps)
Always-on connectivity of mobile (164m US smartphone users)
We’re all socially connected (so great businesses spread faster)
We all have one-click purchase power (Apple, Google, Amazon, eBay)
The VC market has right-sized (returned back to mid 90′s levels & less competition)
Lower costs to start a business (95% reduction), many more companies created & funded by angels / seed
But it still takes VC to scale a business (thus large capital into industry winners like Uber, Airbnb, SnapChat, etc)
It doesn’t take a huge leap to see how well the VC industry is positioned for the immediate future. Limited Partners or LPs (the people who invest into VC funds) have taken notice as 2014 is by all accounts the busiest year for LPs since the Great Recession began.
[Note the full presentation deck with additional slides can be found on SlideShare here or you can simply scroll through it at the bottom of this post.
Since 2009 we’ve been in an unequivocal bull market. Venture capitalists have raised increasing amounts of money from their investors (LPs) every year. An impressive number of new VCs have been created – most of them with new seed funds. We’ve had an explosion of alternate sources of financing from crowd-sourcing, angels, accelerators, incubators, corporates, corporate incubators. And importantly we’ve had revenue. Consumers buying through smart phones, travelers using the new, shared economy and businesses replacing old software with modern cloud-based solutions.
It has been a good run.
But it won’t last forever. It could last 6 more months or 6 more years for all I know. But the economy grows in cycles and always has: Expansion & contraction. For what ever reason we’re wired to have amnesia during the run up and prescient memories of how we ‘knew it all along’ as soon as the slide begins. I do believe that we are in structural change where technology will increasingly play a bigger role in all facets of life so the long run up for tech is promising through all of these cycles. Once you understand both sides of the cycle you start to recognize signs of behavior during each phase.
Update: Bothsides TV is now available on iTunes, Soundcloud, Stitcher, or any RSS podcast player you use, and don’t forget to subscribe on YouTube. I also added a little Soundcloud widget on the sidebar (if you’re viewing on web – not on mobile or RSS reader) that you can listen to each episode with.
In the most recent episode, I interviewed Joe Perez, Founder of Tastemade. If you don’t know Joe, you should. He has a long career in developing products and companies (such as Pogo, Excite@Home, Demand Media, The Daily Plate and now TasteMade) discussed much about his career choices and lessons.
By now almost everybody knows that Marc Andreessen has taken Twitter by storm. By Tweetstorm, that is. Marc seems to single handedly have changed all conventions in Tweeting by dropping 7-10 rapid Tweets in a related stream-of-consciousness labeling each Tweet with a number and a slash before it.
Fred Wilson wrote a Tweetstorm and then did a blog post on the topic. I’ll address his questions at the end of this post.
While Fred’s post makes sense, I honestly think Tweetstorming isn’t Marc’s real magic on Twitter. So I’d like to weigh in with what I believe is.
Marc Andreessen was a prolific and much read blogger for a brief period of time. People religiously read, shared and pontificated on his work. This was pre social media. And then out of nowhere he abruptly stopped. And from there Ben Horowitz became the amazing blogger of record at a16z. Of course they then added Chris Dixon, Ben Evans and many other great public voices.
It’s not hard to find people willing to write the narrative that “venture capital is not an asset class” or “venture capital has performed terribly.”
The most recent was 18 months ago or so called The Kauffman Report. It had an influence on the people who fund our industry in a negative way as many asset managers who fund our industry read this flawed report. That’s a shame because many of these people missed out on what will be a few great VC vintages.
The biggest problem with the report was that it pulled together data from more than a decade ago to proclaim what the future of our industry would look like. I wrote about this in a blog post last year titled “It’s Morning in VC” but I never made the full deck available until now.
I presented the deck below – which was prepared with the great help of Upfront Venture’s Principal Jordan Hudson – at Dave McClure’s must attend event called PreMoney with much more data and narrative than I had in my blog post.