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What Have VCs Really Done for Innovation?
- vaksel 17y ago81% of all programmer jobs? Man these VC guys must be smoking crack
- ujjwalg 17y agoso, not only they make all the money, they also want to be credited for all the innovation and leadership...
- fnid 17y agoThe venture capital market is crumbling. It used to cost a lot of money to build a company, but not anymore and VCs are no longer the gatekeepers to success. Their exits are puny and most of them fail. They are hunting needles in haystacks. The supply is greater than demand. Their 2+20 scheme is too expensive. The wealthy don't need the VCs anymore and the returns they are bringing in aren't worth the risk. This crap from the NVCA is not an isolated event. This absurd notion of a founder visa is another data point in the trending decline of venture capital. VCs are losing their power. They are struggling to keep it. They are crying out for help. They are being destroyed by scrappy startups and small funding orgs like YCombinator. VCs are going the way of universities and print publications and even television. The barriers to entry are not what they used to be. The Internet, and tech in general, is the revolution they claimed it was to their original investors -- so revolutionary in fact that it is defeating even their own industry. Why did they think they were immune to Moore's law. As technology costs decrease, supply increases. VCs operated on supply and demand just like every other industry. They controlled access to the supply of capital to startups and to the supply of startups for investors - but not anymore. The Founder Visa is another effort on their part to regain control of that startup market. If they can increase the supply of ventures only they can enable, then they regain power over other startups. If they can get 50% of a startup from India for $1M, why would they fund the same startup for the US that wants to give up only 20%? Technology is changing so quickly that similar ideas are popping up all over the place. There are a multitude of ideas the vcs can fund. Look at TwitVid here a couple months ago. All the signs are there. The question is, are VCs going to be able to create hype around another industry that actually needs them or are they going to try to defend the fort like the newspapers are doing now? The Internet might just be the biggest innovative idea since the printing press. It could be a long time until another change of this magnitude will come along. Venture Capital will always have a place in a growing society, but the opportunities are declining and the number of VC firms will decline as well. Here are the tips for VC: Make your operations more scalable, increase diversity, fund in smaller amounts and expect less control and equity in exchange. EDIT: I want to add that I know this is true because VC firms have approached us several times wanting to invest. Other companies in our market were funded in the millions by VCs and they are already gone. They couldn't build the kind of revenue or customer base the VCs expect, but a smaller startup like we are can easily sustain itself. VC investment is having a negative impact on the potential success of a business because expectations are wildly out of bounds. It takes longer to make money now and the competition for the business idea is so great that investment of capital is not a differentiator like it used to be. A VC funded startup may have more capital than we have, but we have _way_ more time than they have.
- vaksel 17y agothis applies to internet companies, but any other business needs VCs. Sure you may code your startup in a few years on your own, but how are you going to open a factory without any outside investment?
- deleted 17y ago[deleted]
- ibsulon 17y agoWho isn't outsourcing to China anyway? :/
- eru 17y agoPeople who are outsourcing to Vietnam or the US?
- TomOfTTB 17y agoThe reason VCs are tied to technology is because a VC is generally formed to fund rapid growth companies. The whole point of being a VC is to get in early on something that's going to explode and hence make you a lot of money. It's hard to do that with a company dependent on physical assets. In general companies that need physical assets to operate and grow get funding from private investors who are in for the long haul or banks who grant long term business loans.
- gruseom 17y agoMaybe when your tantrum dies down you can revisit the fun fact that the founders' visa isn't a VC idea at all. I was going to spell out the details, but they are so obvious that I felt embarrassed.
- chaosprophet 17y agoIt is not a VC idea, I agree. However, in order for the founde visa to work, you would need to get atleast some VC's on board, which is what the OP is arguing against, I believe.
- gruseom 17y agoSome of this critique is surely valid. But people are way too binary about this (vcs-suck vs. no-they-don't). You can see that in the first paragraph, where he argues that VC money wasn't essential to either Microsoft's or Google's success. I don't believe that's true in Google's case. I'm pretty sure that without VC money they wouldn't have been able to hire or scale in the way they did, and without those things they wouldn't be Google.
- sachinag 17y agoOh, totally: the VCs were smart enough to see that Google was different enough that both KPCB and Sequoia went in 50/50 on the first $25MM round. And Google had a totally failed monetization strategy (their intranet search appliances, of which they sold a single one, to RedHat) before Sergey and Larry capitulated to allow advertising on SERPs. Google needed the VC money to survive until AdWords finally delivered a coherent monetization strategy. It's a little sad that someone with so much good analysis of the NVCA's overreaching had to throw in a jab so easily refutable.
- gruseom 17y agoI agree, it's superfluous and undermines his case. This is interesting: their intranet search appliances, of which they sold a single one, to RedHat I knew their appliance business wasn't that big, but is that really true? How do you know it?
- tedunangst 17y agoIt's false. I worked for a company that owned one and was not named RedHat.
- known 17y agoI believe Angel Investors (not VCs) contributed a lot for innovation. http://paulgraham.com/angelinvesting.html http://paulgraham.com/angelinvesting.html
- sachinag 17y agoAngel investors are now, and always have been, the engines for innovation. Bankers - the old angels - funded Henry Ford. Back in the day, you could get a loan from a bank for a new venture. You can't any more; this, more than anything, is why new innovation is so concentrated in geographic areas. In the old days, New York banks would give money to an engineer in Detroit. Now, if you want angel money, you need to be physically near the angels. You can raise VC - follower - money from outside your area if you 1) have traction or 2) are a known quantity with a past exit. But a new team in a new market with a new idea? Get thee to the Valley or Route 128, cause that's where the angels are. EDIT: I should say networks of angels for first money in. SV and Mass have enough angels to syndicate a deal. You're restricted to sugar daddies doing $200K by themselves outside those areas (and maybe NYC). First Round led Mint, but they syndicated it in the Valley. Same deal with iSocket, where Tim Draper of DFJ led, but the deal was syndicated to angels. And, of course, if you're Shai Agassi, you can raise a ton of money for Better Place, even though you have no experience in battery tech or distribution, because you're Shai Agassi.
- tomjen2 17y agoThe banks properly can't legally loan money to something so dangerous as a new business. FDIC could never afford to cover _that_.
- sachinag 17y agoThe FDIC insures deposits of depositors, not loans made by banks. Loans are where banks (traditionally) make their loans, and the banks themselves bear the risk (traditionally) of those loans. (I hate having to add the "traditionally" thanks to the insane securitization practices of the last decade. shakes fist)
- lucifer 17y agoThe very fact of the continued existence of VCs for software technology businesses is a sad testament to the inability of the geekdom to capitalize on their knowledge. Perhaps we are unconsciously worried that we will suffer the fate of the Templars, but at least that last group of disruptive geeks managed to squeeze a few centuries on top of the Pyramid from their collective knowledge base.
- pg 17y agoMaybe the NVCA statistics are somewhat bogus, but there is a pretty compelling way to answer the question empirically: how many tech companies have made it as far as an IPO without taking money from VC funds? Maybe the world is changing. Maybe now that it's cheaper to start startups, some will start to make it all the way to IPOs without VC funding. Obviously I would love it if a company we funded could make it to an IPO without any further dilution. But that seems like insanely wishful thinking.
- prakash 17y agohow many tech companies have made it as far as an IPO without taking money from VC funds? Any particular reason you are looking at an IPO as a milestone? Somehow I see the YC companies more like SAS.
- pg 17y agoIt's unequivocal. You could also use a revenue threshold.
- prakash 17y agoHow about some combination of Revenue + Profitability? Revenue alone doesn't help, I think Facebook crossed $300 MM but was not profitable at that point in time. Current IPO's target revenue in the range of $50 MM (I think), pre-bubble IPO's required 4 straight quarters of revenue growth (something like that), this is a moving dynamic.
- akeefer 17y agoFor what it's worth, my understanding is that the target these days (especially thanks to the costs of Sarbanes-Oxley compliance) is closer to $100 MM in revenue to even think about an IPO.
- ivankirigin 17y agoSending astronauts to space also is a clear sign your space program is real. It is also retarded in most cases.
- prakash 17y agoI am guessing the study didn't include YCombinator!
- abalashov 17y agoYCombinator is not a VC organisation.
- prat 17y agoVenture capital is just the fuel that is required to keep an innovative enterprise running. Can oil industry take the credit for bringing industrial revolution? No. Education, innovation and hardwork of entrepreneurs is what keeps the VCs alive. VCs depend on entrepreneurs not vice versa.
- kansando 17y agoVCs are clearly exaggerating their contribution but it is easy to forget that they are the only long-term investors in the current financial system. Who else will commit to eight years of involvement with an unknown entity? Do they need to restructure - yes, but their disappearance will not be good for startups.
- frisco 17y agoThere's this confusion that VCs exist primarily to help innovative startups get off the ground. This just isn't true; they really exist to generate returns for their investors. The complaint that entrepreneurs are so underserved by VCs misses the point: a VC only needs to make a couple investments a year to meet their goals for their LPs. VCs aren't, and have never been, the gatekeepers to success -- and that's not their intention. Yes, there's a long tail of crappy VCs that don't make money and are generally wastes of space -- but that's more an argument for less venture capital in the valley, not more, at any price point, whether it's $200k or $2 million.
- fryduck 17y agoWhat VCs do: Swamp ideas with money and kill off the better ideas, while continuing to lecture the rest of us about how our PPTs should be, what dress we need to wear, and how to be respectful of their time.