> We are, as ever, either at the dawn of a golden age of startups and innovation, as technology’s boosters claim, or soon we’ll be shaking our heads that invest

> We are, as ever, either at the dawn of a golden age of startups and innovation, as technology’s boosters claim, or soon we’ll be shaking our heads that investors ever believed the market for startups was as big or fast-growing as they thought it was. Well, for at least 10 years now, traditional, mainstream US information technology (biomedical is different) venture capital has been essentially stuck in the mud due to a dirty little secret. As a result, on average, returns on investment (ROI) have been low, e.g., as reported in Kauffman http://www.kauffman.org/newsroom/2012/07/institutional-limited-partners-must-accept-blame-for-poor-longterm-returns-from-venture-capital-says-new-kauffman-report http://www.kauffman.org/newsroom/2012/07/institutional-limit... and at AVC.com, the blog of Fred Wilson of Union Square Ventures http://www.avc.com/a_vc/2013/02/venture-capital-returns.html#disqus_thread http://www.avc.com/a_vc/2013/02/venture-capital-returns.html... Here is, apparently, what the secret is: It used to be that venture capital firms could invest in a project described only on a napkin, but this practice was brought to nearly a halt. How? Traditional US venture capital gets nearly all its funds to invest from its limited partners (LPs) which are mostly pension funds, insurance companies, wealthy individuals, sovereign wealth funds (likely Mideast oil money), hedge funds, and not much more. Well mostly the LPs are quite conservative, invest only a tiny fraction of their funds with traditional information technology venture capital firms, and, apparently, have a relatively uniform deal with such firms. The deal: Invest much like private equity investment, that is, in a company evaluated mostly via standard accounting except instead of revenue be willing to substitute traction. So, here's the recipe for traditional US information technology venture capital: Look for a company (1) exploiting information technology, i.e., Moore's law, computing, the Internet, the Web, the cloud, mobile, etc., (2) with a novel product/service, (3) addressing a huge market, (4) with traction significant and growing rapidly, (5) that is desperate enough for some cash to be willing to accept onerous terms. So, here are some of the weaknesses of this traditional approach: (A) Any development work, e.g., writing software, needed for (4) traction has to be already funded and done. Result: This part of the deal means that usually the development work has to be what a few guys can do on a diet of Raman noodles, and that severely limits what products/services can be offered. (B) The deal does not permit giving weight to real progress in research or technology; so, venture partners will not attempt to evaluate such progress and, indeed, nearly never have the background to do, or even direct, such evaluations. Again, the evaluations are basically to be much like in private equity, that is, based on traditional accounting. Result: The companies that get venture funding are doing little or nothing to exploit original research or technology. Maybe something about a market niche, a user interface, or a partner list is novel. But, from US national security, there is now a history of 70+ years of the astounding power of original research and new technology, and, with the deal of the LPs necessarily, that power is nearly always neglected. E.g., for a joke, venture capital would have said: You build and test the first one, build and test the B-29, build a good base in Tinian, and build a good base in Iwo Jima for fighter escorts, and for 30% ownership with BoD control, a full ratchet, and 2X liquidation preference we will chip for in half of the aviation gas for the Enola Gay. In other words, that is vulture capital. We should not expect vulture capital to do much to bring us to > ... the dawn of a golden age of startups and innovation ... and it has not. So, as a result of weaknesses (A) and (B), the information technology startups are on average much less valuable than they should be. So, in particular, there is an opportunity to do much better, in particular, to get much higher ROI. AngelList and YC have a chance for this progress and, thus, to disrupt traditional US information technology venture capital. If the CSC in the OP is willing to consider being an LP with a new deal, then there is a chance of > ... at the dawn of a golden age of startups and innovation ... and much higher ROI.