Comments on: What’s Really Going on in the VC Industry? What Does it Mean for Startups?

By: Dr. Steve G. Belovich

Dr. Steve G. Belovich — Wed, 28 Jul 2010 20:24:03 +0000

Good post. I am a 3x entrepreneur who is planning to move to the “dark side” after an M&A in about 3 years or so (sold one, did an IPO and now plan for an M&A). I am very bullish about VC because I see an under-served (and often ill-served) market, especially here in the midwest. So, rather than fight the trends that you eloquently described, I plan to use them. If the current group of VC folks are good at picking losers, great! Let 'em. I have witnessed many good firms turned down for VC money (and many more really dumb biz plans get funded – and later fail). So, I am using the local/regional VCs as my “filter”: i.e., if they fund a firm, it's almost certainly a loser. If they reject it, it's either really bad or really promising and it's not hard to see which is which. Just a thought.

By: Dan Farfan

Dan Farfan — Fri, 23 Jul 2010 19:06:00 +0000

Excellent post!
Very informative. Assertions backed up with evidence. Great links.

By: Len_Williams

Len_Williams — Wed, 21 Jul 2010 17:10:33 +0000

In December 2009 some predicted that there would be more innovation from entrepreneurs in 2010, as well as social media moving to prime time, more money to cloud computing, mobile devices better at specific tasks, many significant deals and more business people moving towards IPOs. Then, in July 2010 you'll read that the venture capital market in Europe has hit the bottom and its return to growth needs to be stimulated; in 2010http://www.vcgate.com/2010/07/14/venture-capita... capital industry has a focus on biotechnology; in India food processing companies have been in the attention of private equity investors and I could go on like this, with ups and downs...Probably only the end of this year will show us relevant statistics. Anyway, I totally agree with you that those entrepreneurs who will manage to get funded will make better returns.

By: Ted Dintersmith

Ted Dintersmith — Wed, 21 Jul 2010 07:08:42 +0000

For some reason that I'll never understand, venture capitalists and our Limited Partners generally seem to think that the laws of supply and demand don't apply to our industry. Here's what I said in 2002 about the likely prospects for dismal returns from the venture partnerships -- http://www.vcjnews.com/story.asp?sectioncode=4&.... I wouldn't change a word of my caution, but LP's continued to shovel money into venture firms, and generally lost their shirts.

By: amolsarva

amolsarva — Tue, 20 Jul 2010 19:14:08 +0000

What it means for startups: it's true that life is better when you don't have 5 clones to compete with. But some startups — like Peek — compete with non-startups (big players like RIMM and Apple and the non-consumption we are all seeking to eliminate). Our fast, focused, cost-efficient mobile for Internet apps like mail…well no other startup is in the area. But there are a lot of people out there using “just a phone and webmail on their PC” that need to be reached. Even Foursquare and other fat startups have a lot of fighting to do — and if no VC resources, the odds go to the big fat incumbents.

By: Gorilla44

Gorilla44 — Mon, 19 Jul 2010 18:14:00 +0000

What Beth says is true, but I see a very good time to be a biomedical entrepreneur. Large companies like Pfizer, J&J, Stryker, have tons of cash and very weak pipelines. If you can develop something for a big market need (there are a lot of markets like that out there) you can raise capital and eventually get your company/product acquired.

Costs are not going down like they are in IT. Some may argue that they are going up because the FDA is getting more conservative and is making companies do longer and more complicated clinical trials. You can offset some of this by doing trials in credible countries O-US.

By: Dave44000

Dave44000 — Mon, 19 Jul 2010 06:12:00 +0000

VCs need to stop funding Internet companies. They are late market, competing on eyeballs, and not creating the next generation of technology. They start off in the market where everyone competes on promo spend. That wastes money and people. No big wins. So stop it.

By: K. Warman Kern

K. Warman Kern — Mon, 19 Jul 2010 02:43:27 +0000

Couldn't agree more that so far investment in innovation has "proven not to produce social economic value that the public trusts."

And I would much rather compete in a market where investment "pursues prime innovation (regardless of cost), because it is simply priceless."

K---

By: Georges van Hoegaerden

Georges van Hoegaerden — Mon, 19 Jul 2010 00:43:35 +0000

Mark,

How about the VC industry has turned subprime (see my blog), and has applied improper governance because of the improper deployment of risk. Your starting thesis that companies are cheaper to build is like building a stylus to build an iPad, a fundamentally flawed starting thesis (and focal point) and improper deployment of risk that has proven not to produce social economic value that the public trusts. Let's not use that excuse for another 10 years of underperformance with LPs.

Unsurprisingly that rational is used by about 95% of investors and perhaps indicative of why those 95% of VC firms don't make any consistent money for LPs, according to a top money manager in VC.

As with all innovation and financial innovation in VC specifically, it would be unwise to concoct a new venture model out of the optimization of the 95% of failures. Venture deployment needs a rebuild so it pursues prime innovation (regardless of cost), because it is simply priceless.

The reason why venture as the financial instrument to innovation has failed (and unchanged continues to fail) is simply because of the improper deployment of risk (embedded in the VC cartel).

So, I fundamentally disagree with the statements you made that are like the snowballs of an avalanche that should have never existed, and with a new financial system in Venture will not need to exist. I care about discussions about preventing the avalanche, not how to prevent snowballs from rolling down hill.

Best,

Georges

By: davidblerner

davidblerner — Sun, 18 Jul 2010 04:21:47 +0000

http://www.huffingtonpost.com/2010/07/17/yale-d…

Could this recent discovery of a priceless 300 year-old Velazquez painting in Yale's basement reinvigorate their appetite for alternative investments?