Wednesday, October 20, 2010

Big Churns In The VC Industry

Vinod KhoslaImage via Wikipedia
Paul Graham: The New Funding Landscape: After barely changing at all for decades, the startup funding business is now in what could, at least by comparison, be called turmoil..... the previously sharp line between angels and VCs has become hopelessly blurred. .... Super-angels compete with both angels and VCs. .... most of the changes will be for the better.
To those who have been regular readers of the blogs of the major venture capitalists, this churn is not news. The fact that there has been some major churn has been talked about for months. But what people make of the churn, now that's a different story. The best minds have been overall positive with the developments. Looks like entrepreneurs now get to shop around more. There is much more early money available. And that money is not blind money. Early stage investors tend to be more hands on.

To me it feels like we are experiencing the first year of what is about to be a fabulous, fabulous decade. Maybe it is the kind of blogs I read most, but one dissatisfaction for me has been there is still too much talk of the web sector. There I admire Vinod Khosla. The guy was a founder of a major hardware company, became a venture capitalist, and his most recent big jump has been to go beyond the web sector into stuff like clean tech. That dude is sure riding the wave.

I think it is a mistake to stick to just the web sector. Smart money will go where the returns will be the highest. And maybe there is no next Google in the web sector. Facebook is the next Facebook, it is evolving so fast.

But the web is to do with the mind, and it will forever stay fertile. But I think it is wise to take a sneak peak into the future and see how obviously big clean tech, biotech and nanotech are going to be. Look at how nano dominated the Nobel prizes this year. The Nobel is pretty mainstream. It is almost like World Cup Soccer.

The smart money will not only go into clean tech, biotech, nanotech, but it will also take a fresh look at not so sexy sectors like global microfinance and global infrastructure. What is sexy about the web sector and the infotech sector is that information pertains to all those new sectors.

Cutting edge developments in the big screen web and the mobile web could revolutionize microfinance, for example. To do well in that intersection, you have to know a lot of tech, you have to know a lot about microfinance, you have to be very aware of the larger social, cultural, political forces. So it is still web tech, but it is definitely web tech plus.

I feel like we are at the cusp of being able to tackle big problems, and reimagine big industries. The emergence of new sectors does not mean web tech has gone into the background or is about to, it means web tech has gone mainstream, and now dealing with big, bad mainstream problems, challenges is what you are going to have to get into.

This is going to be a brave, new decade ahead of us.
Paul Graham: The New Funding Landscape: The fact that super-angels invest other people's money makes them doubly alarming to VCs. They don't just compete for startups; they also compete for investors. What super-angels really are is a new form of fast-moving, lightweight VC fund. ..... VC funds are seriously threatened by the super-angels ..... the jerks who give you lines like "come back to me to fill out the round." ..... A company that gets acquired for 30 million is a failure to a VC, but it could be a 10x return for an angel, and moreover, a quick 10x return. Rate of return is what matters in investing—not the multiple you get, but the multiple per year....... As a rule, the only thing that can kill a good startup is the startup itself. Startups hurt themselves way more often than competitors hurt them ...... Unless there's some huge market crash, the next couple years are going to be a good time for startups to raise money. And that's exciting because it means lots more startups will happen.
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Wall Street Journal: Verizon Wireless to Offer Cheaper Data Plan
Paul Graham: The New Funding Landscape
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Pingdom: How Google dominates the Web
BBC: Internet users to exceed 2 billion by the end of 2010
Asymco: 60 percent of Apple’s sales are from products that did not exist three years ago

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