Is Venture Capital Dead?
The post Infectious Greed: Venture Capital Business is a Dud quotes an article where Greylock Partners‘ Bill Helman expresses candid feelings that the venture capital industry is going down. I as an entrepreneur agree that the state of mind of VC today and the way funding decisions are taken may imply a dead end for the VC industry. A quote from the original article enforces this gloomy perspective - “as only a handful of outfits have generated a majority of the industry’s reported profits over the last 15 years”.
The real question here is whether IT markets have reached their optimum and whether we are in an industry maturation phase as “classic” literature defines as one step before a slow decline to death or is it just a plateau before the next steep demand curve. IT markets have always been born and fuelled thanks to innovative minds that invented things that were not thought possible or not being thought of at all. These minds have been always supported by external financial resources although today the level of resources required for starting up a company with good chances to survive have increased dramatically. “Identifying” an industry maturation could have been done 20 years ago before those same minds envisioned the potential of the internet and its commercial uses and at any other point were a three years of low demand level existed.
The VC community is by nature watching fragments of history where the returns on investments that they see (and try to gross evaluate as an indicator for the state of the industry) are always a reflection of what have been invested during the prior five years. The last five years (2000-2005) have been very slow in terms of fuelling innovation and today VC see the results of that conservative attitude. Creating the next wave of productivity tools both for corporations and individuals always requires a leap of faith and creating a 10-15 giant companies every five years is not so bad since many other smaller companies depend on them and make complete viable industries.
