In this three-part series I will explore the ways that the Venture Capital industry has changed over the past 5 years that I would argue are a direct result of changes in the software industry, not the other way around. Specifically, Amazon has changed our entire industry in profound ways often not attributed strongly enough to them.
I believe the changes to the industry will be lasting rather than temporal change. Venture capital is in the process of its own creative destruction with new market entrants and new models of innovation at the precise moment that our industry itself is contracting.
I will argue that when the dust settles, although we will have fewer firms, each type well end up more focused on traditional stage segments that cater to the core competencies of that firm. The trend of funding anything from the first $25k to funding $50 million at a billion+ valuation is unlikely to last as the skills and style to be effective at all stages are diverse enough to warrant focus.
I will argue that LPs who invest in VC funds will also need to adjust a bit as well.
When I built my first company starting in 1999 it cost $2.5 million in infrastructure just to get started and another $2.5 million in team costs to code, launch, manage, market & sell our software. So it’s unsurprising that typical “A rounds” of venture capital were $5-10 million. We had to buy Oracle database licenses, UNIX servers, a Sun Solaris operating system, web servers, load balancers, EMC storage, disk mirrors for redundancy and had to commit to a year-long hosting agreement at places such as Exodus.
Open-Source Software & Horizontal Computing
The first major change in our industry was imperceptible to us as an industry.
This post originally ran on TechCrunch.
I recently spoke at the Founder Showcase at the request of Adeo Ressi. I asked what the audience most needed to hear.
He said, “They need an unbiased view of the fund raising environment because there is too much misinformation and everything seems to be changing fast.”
This was an audience of mostly first-time entrepreneurs. They have seen one side of a market where many of us have seen the ebb and flow multiple times. Still, market amnesia by ordinarily rational actors always surprises me.
I spoke about a lot of things during the keynote. If you are interested the Vimeo is here.
An edited version of this post originally ran on TechCrunch. This version has some additional details on a portfolio company I’ve invested in, which are disclosed below.
WWDC. The annual Apple event where no real hints about what products they plan to release are floated in the public domain in advance.
No private head nods are given to small startup companies to help them prepare. We’re in a market where 800-pound gorillas throw their weight around and the rest of the market races to react and survive.
Any company who develops products reliant on iOS spends weeks crapping their pants before WWDC. No vacation schedules allowed for weeks before or weeks after. The announcements come out in one day and then even if you survive the annual release announcements you often still have to scramble to make sure your product is ready to work on time.
This happens with Google, too.
Twitter is an ephemeral service. It’s what I love about Twitter. When I’m in the mood to consume what my world is telling me right now I can “tune in” to Twitter and digest the rapid stream. I don’t really worry about missing stuff. If somebody wanted me to see something they’d @ message me, which I always read. And as I’ve written about in the past, I truly believe that Twitter networks are significantly different from other social networks.
The downside to this rapid stream is that at times you come across super interesting articles that you want to read but for which you don’t currently have the time. How do you deal with this scenario? For me, when I use Twitter on my Blackberry I email the Tweet to my gmail account and I read them later. I auto filter these in Gmail so I essentially get a reading list of future articles. I think a lot of people do this if their mobile Twitter client supports it.
The way that I used to deal with it on Twitter.
This article originally appeared on TechCrunch.
Banner Ads. They first started in 1994 and are therefore almost as old as the Web itself. They were very effective back then, with the original ad garnering a 78% click-through rate (CTR)! I guess from there we had nowhere to go but down.
Nowadays banner ads get on average 0.2% CTR meaning for every 1,000 ads that are served up only 2 people click on them. And as Jon Steinberg of Buzzfeed points out, the CTRs for social media banner ads are just 0.08%.
The most common questions I’ve gotten over the past week have been a variant of:
Was SXSW worth it?
Was it just one big party?
Should I go next year?
Why do your eyes still look so bloodshot?
(And I’ve learned a new term, I arrived home with SxSARS).
As you may know I outlined my rules for maximum impact at events / conferences before SXSW began. If you didn’t read it, it’s here.
I hold true to form and follow my own advice. I didn’t sit through any panels (other than the day where I was the emcee and judge for the BizSpark Accelerator program). I booked several high-profile meetings in advance. I had scheduled dinners every night with small groups of people. I stayed out late. Strike that. LAAATE. Every night. I focused on relationships, connections, human bond, idea generation, testing products and also I generally tried to be available for others.
SXSW was magic. I can’t imagine having been at a better event. I was listening to NPR on my drive in yesterday morning.