VC Industry


By now you will likely have read Andy Dunn’s scathing post about Venture Capitalists in which he decries the industry’s masses.

I read Andy’s post with a knowing smile on my face. After all, I am no stranger to publicly expressing the frustrations of dealing with the downside of this industry as I wrote about in 2006 when I was an entrepreneur.

But VC is like congress. It’s easy to hate it en masse yet many people love their local congressman.

Why?

Because they know him or her. They see how hard she does her job. They know her personally and know she cares about her constituencies even if she has to make tough trade-offs from time-to-time.

In the original version of his post, Andy writes

“This essay is dedicated to the great VC’s on my board who I am lucky to work with: Sameer Gandhi from Accel, Jeremy Liew from Lightspeed, and Kirsten Green from Forerunner.

I rest my case. “Hate the industry, Love my local guy.”

But many of the assertions in his post – while populist – aren’t exactly how things are in reality. So I thought I’d have my hand at a friendly counter point.

After all, I understand’s Andy’s frustrations with the industry.

And yours as well. I have felt them myself.

I wrote Andy first to be sure he wouldn’t be offended if I did. Luckily Andy is good natured

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Early today I gave a keynote at the VCJ Venture Alpha conference here in San Francisco. I was asked to speak about the topic of “what is going on in the venture capital world and what is the next big thing after social networking?”

// Future of VC Internet

Tough topic, but what the heck?

Next week I promised to follow up on PE Hub, one of the main journals VCs read about our industry, with a detail description of some specifics that are happening. Watch out for that – I will have a lot more details.

I’ve listed some great VCs in the presentation. I’ve left off many great ones. It isn’t intentional. You can’t cover everybody in a prezzo. Please don’t read anything into that. Some of the big ones I left off was Tim Connors of PivotNorth and Aydin Senkut of Felicis Ventures.

And all feedback welcome! See you in the comments.

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This article was originally published on TechCrunch.

Venture Capitalists typically have partners’ meetings on Mondays. Why is that? Who knows. But probably because as a group we travel a lot. So the industry formed around a day of the week when all partners could avoid having company board meetings or traveling.

Yesterday was a Monday. And not a pleasant one.

Rewind. When I first got into the industry it was 2007. Valuations were enormous relative to progress in companies. Web 2.0 was still a term being bandied about. Companies with less than $2 million in revenue were asking for $50-60 million valuations and getting them. My partnership was pretty bearish and scratched our heads a bit at price tags.

It was a great learning time for me.

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Today I’m announcing that GRP Partners is doubling down on the Twitter ecosystem by investing in DataSift, a company who provides a real-time data platform and tools to third-party developers and corporations.

Our goal is to make the enormous volume of real-time information more manageable for the 99% of companies that lack the infrastructure to process these volumes in real time. Think of DataSift as turning the fire-hose into a cost-effective and manageable tap of running water. Or in utility speak, they are transmission and we are last-mile distribution.

And better yet, the company has a product that will turn the stream into a lake. What does that mean? The Twitter stream like most others is ephemeral. If you don’t bottle it as it passes by you it’s gone. DataSift has a product that builds a permanent database for you of just the information you want to capture.

Finally, DataSift has an enormous about of historical data already stored we we can help you go back and retrieve some older data for analytical purposes.

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This is the final part of a 3-part series on the major changes in the structure of the software & the venture capital industries.

The series started here if you want to read from the start.

Or the Cliff Note’s version:

Open Source & Cloud Computing (led by Amazon) drove down tech startup costs by 90%
The result was a massive increase in startups & a whole group of new funding sources: both angels & “micro VCs”
With more competition in early-stage many VCs are investing smaller amounts at earlier stages. Some are going later stage to not miss out on hot deals. I call this “stage drift.”
The opportunities for tech startups today are more immense than they’ve ever been with billions of people now connected to the Internet nearly all the time.

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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.

Rewind
When I built my first company starting in 1999 it cost $2.5 million in infrastructure just to get started and another $2.

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