Back To The Future For Venture Capital
by Miki SaxonHooray! Finally! It’s about time.
For more than a decade my angel investor and many of our colleagues have been bemoaning what happened to the venture world. Call it the takeover of the walking investment banker.
It started when the name partners wanted to kick back a bit. That made sense, but unfortunately they went to Wall Street for their new people and hired a lot of the hot young turks who were great at manipulating money, but had never really produced anything.
I remember a client telling me how the Board member from his VC investor had a tantrum yelling for the company’s ROI numbers—when the company was six months, working on a revolutionary hardware/software system and the product was still in development. Sheesh.
“The biggest names in the industry are concerned about low returns and are blaming several factors: funds that have grown too large, the M.B.A.’s that have invaded the industry and older partners who have lost touch with what is new in technology.”
For those who don’t understand, typically a partner sits on the board of each startup that the firm funds and this limits the number of companies in which they can invest. In 1990 VCs invested $2.7 billion, at the height of the dot bomb it was $104 billion; it’s dropped back to around $30 billion now.
Because the money must be put to work, too much money is often forced on firms that didn’t need it.
“That often means forcing $3 million into a company that needs $300,000,” according to Ben Horowitz.
Now a number of VC firms, some old players and some new ones have decided to change the game.
The latest, and one of the hottest, is Andreessen Horowitz.
“Marc Andreessen, who co-founded Netscape, is announcing on Monday that he and Ben Horowitz, a longtime business associate, have raised $300 million that they intend to invest in technology companies. The venture capital firm, Andreessen Horowitz, will risk small sums, as little as $50,000, on new ideas.”
This is good strategy, far better than pushing millions on a company that needs far less for no other reason than the money needs to be invested and the number of partners is limited.
So what does all this mean to you?
Well, it won’t happen overnight, but it could mean dozens or even hundreds of new, solid startups with doable business plans and backed by patient money.
The kind of companies that grow and flourish because their investors don’t have to have a multi-billion return next week to look like heroes to their investors.
And that’s what made our economy and country strong.
Image credit: Mark Coggins on flickr and agoldfisher on YouTube
