Morn the Seed, Plant the Seed
Must-read Fortune article on venture capital in 2002. [Scripting News]
What really worries [Stanford business professor Hau] Lee, however, is not washouts and wipeouts but the fact that a fresh, new generation of entrepreneurs is finding it nearly impossible to get venture backing. "The idea that this is hurting entrepreneurism is certainly true," he says. "I have a number of students with interesting ideas. In the past they wouldn't have hesitated (to start a new company) and try them out, but now they've opted to go work for a conventional company."
I morn the seed. Unfortunately, all the Angels have gone to heaven, VC firms have their own problems and the Seed stage market barely exists. VCs typically lag behind the NASDAQ by about 1 year, so expect more of the same.
The prolonged contraction has exausted most entreprenuer's abilities to bootstrap. And bootstrapping is further held back by buyers of technology who could potentially seed by providing cash flow. Primarily because buyers have shifted to be more conservative in the technology adoption lifecycle[see whitepaper]. This will have a tremendous downstream impact both in terms of economic growth and innovation.
The ray of hope eminates from greed. At some point, technology buyers will risk adoption to gain competitive advantage. At some point, VCs will invest for their own competitive advantage. At some point, acquisitions to enter new markets and increase share in existing ones will offer valuable exists.
"I don't believe these guys can effectively manage the dollars they have under their belt," she [Ashley Read at Blueprint Ventures] says of the biggest Bubble Funds. They have so much money, she says, that they can't invest several million bucks in a small startup anymore--they wouldn't be able to manage that many investments. So they're stuck investing larger sums in later-stage ventures or seeking other investment alternatives. At that point "it's no longer a venture capital firm," she says. "What is it? I don't know. An investment company? What it is is an accident waiting to happen."
Ashley hints at a greater point. While some say that the current environment is simply like the way Venture Capital used to be, I beg to differ. The bubble spawned too many herdlike trend chasers and its forgotten what venture capital used to be. Great thinkers. Great risk takers. There are some VCs who still hold this title. At some point, from smaller funds or not, a thoughtful contrarian will envision a new company, take risk and gain competitive advantage -- the way it used to be.