http://disruptivethoughts.disqus.com/enWed, 24 Aug 2011 05:23:32 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-294281461<p></p><p>I wanted to write you one tiny observation to help thank you so much once again for your personal incredible thoughts you've documented in this article. It has been seriously open-handed of you to supply openly what exactly some people would have advertised as an e-book in order to make some dough for themselves, chiefly seeing that you might have tried it if you ever considered necessary. Those smart ideas in addition worked as the easy way to recognize that other people have a similar desire the same as my own to know much more when it comes to this condition. 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I've talked about the problem in the VC industry as "venture lotto" (a blog entry from last summer). I agree with most of your comments. However, you overestimate the importance of the "VC brand". If an entrepreneur needs a VC's brand to rise above the noise, he/she will never be the next Sam Walton or Bill Gates. I'm curious to find out which VC made SAP, Qualcomm, Broadcom, Adobe, Autodesk, RIMM, EMC, SAS, Dell, or Oracle? All are well known companies but I honestly don't know which VC should get credit. And yes, Ellison took VC funding from Don Valentine (perhaps one of the top 2-3 VCs of all time) but no VC took a board seat. The 2 VCs who did invest did so after the company was profitable and about to go public (and cashed out shortly after the lock-up, long before another 100x run-up). Reputations of VCs get built on the successes of companies, not the other way around. I don't know who you might think is the greatest VC in the world but if that VC invested in Delicious (which I guess was branded a winner by its investors), it wouldn't make the company more successful. In fact, I doubt it would make much of a difference if you had the top 3 VCs in the world invest - and if the top 10 VCs invested, I'd seriously start worrying about their prospects!</p>HoFri, 09 Feb 2007 00:59:22 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730201<p>Well said. I've talked about the problem in the VC industry as "venture lotto" (a blog entry from last summer). I agree with most of your comments. However, you overestimate the importance of the "VC brand". If an entrepreneur needs a VC's brand to rise above the noise, he/she will never be the next Sam Walton or Bill Gates. I'm curious to find out which VC made SAP, Qualcomm, Broadcom, Adobe, Autodesk, RIMM, EMC, SAS, Dell, or Oracle? All are well known companies but I honestly don't know which VC should get credit. And yes, Ellison took VC funding from Don Valentine (perhaps one of the top 2-3 VCs of all time) but no VC took a board seat. The 2 VCs who did invest did so after the company was profitable and about to go public (and cashed out shortly after the lock-up, long before another 100x run-up). Reputations of VCs get built on the successes of companies, not the other way around. I don't know who you might think is the greatest VC in the world but if that VC invested in Delicious (which I guess was branded a winner by its investors), it wouldn't make the company more successful. In fact, I doubt it would make much of a difference if you had the top 3 VCs in the world invest - and if the top 10 VCs invested, I'd seriously start worrying about their prospects!</p>HoThu, 08 Feb 2007 23:59:22 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730198<p>Interesting discussion. What I am surprised by, however, is the superfluity with which everyone asserts that start-up and development costs have fallen drastically. It is a key premise of the argument that the VC model needs to be shifted, but it has not been examined carefully enough. I would try to make two points: <br>(a) While hardware costs have, indeed, contributed to a large fall in the initial fixed costs, the product development costs that are essentially labour costs have not been affected by outsourcing or offshoring as much as people would like to believe. <br>(b) The typical VC can adapt to these changes 'within' the current model - 'disruption' is too strong a word, and I am sure this is not mere semantics.</p><p>On (a) - Bnoopy (July 29, 2005) does note the phenomenal drop in the hardware/infrastructure costs. I would not dispute that. Yet hardware is a ‘set-up cost’ (the maintenance and/or depreciation components are minimal in the high-tech industry) whereas. The cost that will multiply your burn-rate is the labour costs associated with your product development. It is here that the costs are unlikely to fall, despite outsourcing to offshore centers like India because most of the IT-subsectors where US VCs invest are what I would call ‘professional software design’ where atomization of the product development process is either impossible or, if possible, carries an immense downside risk.</p><p>I think the fallacy in the Fraser’s (and Rick Segal’s, who has a challenging piece on this also) argument is a focus on a relatively narrow sub-sector of IT-sector innovation. Namely, they zero-in on the ‘consumer-focused’ innovation – technology serves as a tool to implement an entrepreneurial idea. Fraser’s citation of Posima is an excellent example here. Posima does bring an extremely useful service by enabling efficient, quasi-professional website design. Yet this is only a small part of what the high-tech sector is all about. If you look at Thomson’s VenturExpert database, ‘computer software’ makes up less than half of total IT-sector VC investments in 2005 and significantly less before that. Indeed, disaggregating this sub-sector further, one sees that amongst all the different software headings, “Banks/Financial Institutions Software” and “Firewall/Encryption Software” are the two largest software components. These are ‘professional software design’ cases and are only two examples amongst many others in the same sub-sector. (incidentally, feel free to get in touch with me if you would like to see the charts I refer to – VenturExpert is proprietary and I’ve had to work a bit to get these data together). If you talk to the programmers who build these things, the product development process is fundamentally iterative – from the functional specification sheet, through to the technical specification sheet, writing of the code and, finally, testing. And I am simplifying the process. Offshoring of these tasks would involve a major change to the management structure – you would have to ensure that your functional spec sheet is extremely detailed, your tech. spec. sheet is meticulously thought-through. All this pales in comparison with the problem of dealing with code-writing decisions that have to be made by experienced programmers, not simple code-writers, as the software idea is actually realized. All this may sound trite, but with your programmers sitting in South Asia or Russia or even Eastern Europe, you WILL have communication issues and your development process can be bogged down for periods of time that are unacceptable for a startup that is trying to get a product to market. An entrepreneur is faced with the choice - reach for the low-hanging ‘fruits’ of lower programmer wages but be prepared for the ‘worm’ inside them of poor technical performance.</p><p>On (b) – The opportunity for lower labour costs during the product development stage are thus fraught with downside risks I outline above. The VC, however, has a niche here – to ameliorate some of this risk through his/her network capacity. Offshoring of product development needs to be managed, and the skills necessary are not what an entrepreneur is likely to possess – this is a clear opening for VCs. More specifically – the VC may be able to offer an entrepreneur access to a dedicated offshoring ‘body-shop’ where a (preferably proprietary) relationship with this shop and management methods, to handle the differences in product development model due to offshoring, have been honed over some significant period. This suggestion merely emphasizes the ‘don’t-be-an-ATM’ idea in Fraser’s post and is one step towards the ‘VC-as-incubator’ concept that he discusses in his later post. Undoubtedly, the other characteristics of an incubator may be invaluable for a seed company, but the focus here is on the lowering of product development costs.</p><p>Interestingly, this is something that a VC firm, with capital behind it, can have a clear advantage over an angel, or an angel network, even allowing for the prior that lower start up costs permit these private investors to support a startup to a more mature stage than before.</p><p>I can see some drawbacks here, naturally. One is that the process of writing innovative software, at some core, cannot be atomized further. The definition of such a ‘core’ depends on the nature individual project and cannot be set a priori. There will always be heightened risks in sending large parts of product development across a couple of oceans. Grafting such radical outsourcing tactics will, by definition, be marked by ‘teething troubles’. Yet, a recent poll of relatively young, high-growth firms by PriceWaterhouseCoopers noted that the two things that are on the minds of the high-tech firms are – ‘lack of qualified workers’ and ‘developing new technologies/services’. Combine these two facts and outsourcing may soon grow to become a competitive necessity, rather than an advantage.</p>Daniel PopovTue, 31 Jan 2006 14:40:36 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730204<p>Interesting discussion. What I am surprised by, however, is the superfluity with which everyone asserts that start-up and development costs have fallen drastically. It is a key premise of the argument that the VC model needs to be shifted, but it has not been examined carefully enough. I would try to make two points: (a) While hardware costs have, indeed, contributed to a large fall in the initial fixed costs, the product development costs that are essentially labour costs have not been affected by outsourcing or offshoring as much as people would like to believe. (b) The typical VC can adapt to these changes 'within' the current model - 'disruption' is too strong a word, and I am sure this is not mere semantics. On (a) - Bnoopy (July 29, 2005) does note the phenomenal drop in the hardware/infrastructure costs. I would not dispute that. Yet hardware is a ‘set-up cost’ (the maintenance and/or depreciation components are minimal in the high-tech industry) whereas. The cost that will multiply your burn-rate is the labour costs associated with your product development. It is here that the costs are unlikely to fall, despite outsourcing to offshore centers like India because most of the IT-subsectors where US VCs invest are what I would call ‘professional software design’ where atomization of the product development process is either impossible or, if possible, carries an immense downside risk. I think the fallacy in the Fraser’s (and Rick Segal’s, who has a challenging piece on this also) argument is a focus on a relatively narrow sub-sector of IT-sector innovation. Namely, they zero-in on the ‘consumer-focused’ innovation – technology serves as a tool to implement an entrepreneurial idea. Fraser’s citation of Posima is an excellent example here. Posima does bring an extremely useful service by enabling efficient, quasi-professional website design. Yet this is only a small part of what the high-tech sector is all about. If you look at Thomson’s VenturExpert database, ‘computer software’ makes up less than half of total IT-sector VC investments in 2005 and significantly less before that. Indeed, disaggregating this sub-sector further, one sees that amongst all the different software headings, “Banks/Financial Institutions Software” and “Firewall/Encryption Software” are the two largest software components. These are ‘professional software design’ cases and are only two examples amongst many others in the same sub-sector. (incidentally, feel free to get in touch with me if you would like to see the charts I refer to – VenturExpert is proprietary and I’ve had to work a bit to get these data together). If you talk to the programmers who build these things, the product development process is fundamentally iterative – from the functional specification sheet, through to the technical specification sheet, writing of the code and, finally, testing. And I am simplifying the process. Offshoring of these tasks would involve a major change to the management structure – you would have to ensure that your functional spec sheet is extremely detailed, your tech. spec. sheet is meticulously thought-through. All this pales in comparison with the problem of dealing with code-writing decisions that have to be made by experienced programmers, not simple code-writers, as the software idea is actually realized. All this may sound trite, but with your programmers sitting in South Asia or Russia or even Eastern Europe, you WILL have communication issues and your development process can be bogged down for periods of time that are unacceptable for a startup that is trying to get a product to market. An entrepreneur is faced with the choice - reach for the low-hanging ‘fruits’ of lower programmer wages but be prepared for the ‘worm’ inside them of poor technical performance. On (b) – The opportunity for lower labour costs during the product development stage are thus fraught with downside risks I outline above. The VC, however, has a niche here – to ameliorate some of this risk through his/her network capacity. Offshoring of product development needs to be managed, and the skills necessary are not what an entrepreneur is likely to possess – this is a clear opening for VCs. More specifically – the VC may be able to offer an entrepreneur access to a dedicated offshoring ‘body-shop’ where a (preferably proprietary) relationship with this shop and management methods, to handle the differences in product development model due to offshoring, have been honed over some significant period. This suggestion merely emphasizes the ‘don’t-be-an-ATM’ idea in Fraser’s post and is one step towards the ‘VC-as-incubator’ concept that he discusses in his later post. Undoubtedly, the other characteristics of an incubator may be invaluable for a seed company, but the focus here is on the lowering of product development costs. Interestingly, this is something that a VC firm, with capital behind it, can have a clear advantage over an angel, or an angel network, even allowing for the prior that lower start up costs permit these private investors to support a startup to a more mature stage than before. I can see some drawbacks here, naturally. One is that the process of writing innovative software, at some core, cannot be atomized further. The definition of such a ‘core’ depends on the nature individual project and cannot be set a priori. There will always be heightened risks in sending large parts of product development across a couple of oceans. Grafting such radical outsourcing tactics will, by definition, be marked by ‘teething troubles’. Yet, a recent poll of relatively young, high-growth firms by PriceWaterhouseCoopers noted that the two things that are on the minds of the high-tech firms are – ‘lack of qualified workers’ and ‘developing new technologies/services’. Combine these two facts and outsourcing may soon grow to become a competitive necessity, rather than an advantage.</p>Daniel PopovTue, 31 Jan 2006 13:40:36 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730197<p>I agree that perhaps the incubator model's time has come. Most important is the access to experts - marketing, financial, tech, what ever's needed - so that entrepreneurs don't make those company-destroying blunders that so often cause good companies to die before their time. We started our company in 2000 a few months after the crash on the most minimal of costs, got bottom-line neutral in a matter of months and haven't needed any cash since. However we made some fundamental mistakes over the past five years that really set-us back - you just can't put a dollar figure on that stuff...</p>Phil SimSat, 28 Jan 2006 21:26:49 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730203<p>I agree that perhaps the incubator model's time has come. Most important is the access to experts - marketing, financial, tech, what ever's needed - so that entrepreneurs don't make those company-destroying blunders that so often cause good companies to die before their time. We started our company in 2000 a few months after the crash on the most minimal of costs, got bottom-line neutral in a matter of months and haven't needed any cash since. However we made some fundamental mistakes over the past five years that really set-us back - you just can't put a dollar figure on that stuff...</p>Phil SimSat, 28 Jan 2006 20:26:49 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730196<p>A conundrum indeed: entrepreneurs need less money and investors want to put more money to work on fewer deals. Organized angel groups are filling some of these gaps, but opportunities for newer models definitely exist. Through Internet organization and localized support, investable funds continues to find and fund worthwhile ideas. Maybe the startup incubator model will finally make sense and be profitable for all involved.</p>Carey RansomSat, 28 Jan 2006 11:53:53 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730195<p>Fred Wilson adds to the conversation <a href="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html" rel="nofollow noopener" target="_blank" title="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html">with this post</a>.</p><p><a href="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html" rel="nofollow noopener" target="_blank" title="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html">http://avc.blogs.com/a_vc/2...</a></p>FraserSat, 28 Jan 2006 11:24:37 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730202<p>A conundrum indeed: entrepreneurs need less money and investors want to put more money to work on fewer deals. Organized angel groups are filling some of these gaps, but opportunities for newer models definitely exist. Through Internet organization and localized support, investable funds continues to find and fund worthwhile ideas. Maybe the startup incubator model will finally make sense and be profitable for all involved.</p>Carey RansomSat, 28 Jan 2006 10:53:53 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730205<p>Fred Wilson adds to the conversation <a href="<a href=" rel="nofollow noopener" target="_blank" title="<a href="></a><a href="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html" rel="nofollow noopener" target="_blank" title="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html">http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm....</a>rel="nofollow"&gt;with this post. <a href="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html " rel="nofollow noopener" target="_blank" title="http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm.html ">http://avc.blogs.com/a_vc/2006/01/dont_be_an_atm....</a></p>FraserSat, 28 Jan 2006 10:24:37 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730194<p>Good point Scott. I love the idea of a more organized Angel network. It does make a lot of problems disappear right off the bat mainly because Angles don't have investors because they are the investors. Because of this they have no time/exit or money (meaning too much of it) constraints. The only thing that would be hurt by this revolution are the LPs who invest in VC funds since a lot of them are college endowments and non-profits who use their investment returns to futher the good that they do. However, they could join the Angel network as an organization and make their own investments.</p>Eric OlsonFri, 27 Jan 2006 12:11:46 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730206<p>Good point Scott. I love the idea of a more organized Angel network. It does make a lot of problems disappear right off the bat mainly because Angles don't have investors because they are the investors. Because of this they have no time/exit or money (meaning too much of it) constraints. The only thing that would be hurt by this revolution are the LPs who invest in VC funds since a lot of them are college endowments and non-profits who use their investment returns to futher the good that they do. However, they could join the Angel network as an organization and make their own investments.</p>Eric OlsonFri, 27 Jan 2006 11:11:46 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730193<p>Great stuff! I wonder how much the VC's can actually change though. Look at the recording industry. It's similar.</p><p>They are clearly under siege. The smart thing to do with be to figure out how to take advantage of the disruptions in their markets and create new businesses around what that market is making happen. Instead they resist, oh man do they resist.</p><p>VC's deal in a similar space. Intellectual property and creativity. Both required of great musicians and great startups. And, as you noted, like music, it's a hit's business with the long tail largely ignored.</p><p>Unlike the record companies who go after their customers in court, I doubt the VC's will sue the startups for not taking their money, but I wonder if they'll actively try to fight the changes being brought on by lower startup costs, a limited set of exist strategies and lower overall ROI investments.</p><p>I'm CEO of a startup that's about10 months old and about 6 or so months into development with a product that's in beta and about to go 1.0. I've been talking to VC's, but I haven't been really pursuing it. We run cheap. Our monthly burn rate is 4 figures (yea.. four). Co-lo charges for our servers and enough to pay rent for some of our younger/less solvent guys is all it really takes to keep the doors open, at least for now.</p><p>The main reason we're looking at potential VC money is because there are bunch of guys behind us who, with big cash infusions from VC's, could leapfrog us.</p><p>We're not sure we want VC money, but we're reasonably sure we're going to need it.</p><p>Why?</p><p>Because of the threat of VC money in other people's (competitors) hands. Kinda circular isn't it?</p><p>My guess is a change in the VC industry is going to have to be driven as much from the startup side as the VC side. Guys like us do more self funding/bootstrapping and take some angel money, and just say no to the VC's.</p><p>It's tempting though. Life really IS easier if you have a (reasonable) salary, a nice enough group workspace and some money to do real marketing. But it feels, especially now that the real costs of a startup are so much less than they were a few years go, like we're selling our souls, not to mention majority ownership in the company.</p><p>I can say this: If all you older tech guys (and I mean all of you..) who got out with some money took some percentage of your money, and some percentage of your time, and became very active angels it would put a very big dent in the early stage VC business. I know this happens now, but it’s underground and invisible to most new startups.</p><p>As everyone know, the real value (and largest returns) are almost always in the early stage investments.</p><p>Dare I say that a truly organized national Angel network (or set of networks) might even change the landscape of the business?</p><p>Maybe. Just maybe.</p>Scott ConverseFri, 27 Jan 2006 01:36:14 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730200<p>Great stuff! I wonder how much the VC's can actually change though. Look at the recording industry. It's similar. They are clearly under siege. The smart thing to do with be to figure out how to take advantage of the disruptions in their markets and create new businesses around what that market is making happen. Instead they resist, oh man do they resist. VC's deal in a similar space. Intellectual property and creativity. Both required of great musicians and great startups. And, as you noted, like music, it's a hit's business with the long tail largely ignored. Unlike the record companies who go after their customers in court, I doubt the VC's will sue the startups for not taking their money, but I wonder if they'll actively try to fight the changes being brought on by lower startup costs, a limited set of exist strategies and lower overall ROI investments. I'm CEO of a startup that's about10 months old and about 6 or so months into development with a product that's in beta and about to go 1.0. I've been talking to VC's, but I haven't been really pursuing it. We run cheap. Our monthly burn rate is 4 figures (yea.. four). Co-lo charges for our servers and enough to pay rent for some of our younger/less solvent guys is all it really takes to keep the doors open, at least for now. The main reason we're looking at potential VC money is because there are bunch of guys behind us who, with big cash infusions from VC's, could leapfrog us. We're not sure we want VC money, but we're reasonably sure we're going to need it. Why? Because of the threat of VC money in other people's (competitors) hands. Kinda circular isn't it? My guess is a change in the VC industry is going to have to be driven as much from the startup side as the VC side. Guys like us do more self funding/bootstrapping and take some angel money, and just say no to the VC's. It's tempting though. Life really IS easier if you have a (reasonable) salary, a nice enough group workspace and some money to do real marketing. But it feels, especially now that the real costs of a startup are so much less than they were a few years go, like we're selling our souls, not to mention majority ownership in the company. I can say this: If all you older tech guys (and I mean all of you..) who got out with some money took some percentage of your money, and some percentage of your time, and became very active angels it would put a very big dent in the early stage VC business. I know this happens now, but it’s underground and invisible to most new startups. As everyone know, the real value (and largest returns) are almost always in the early stage investments. Dare I say that a truly organized national Angel network (or set of networks) might even change the landscape of the business? Maybe. Just maybe.</p>Scott ConverseFri, 27 Jan 2006 00:36:14 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730192<p>David, great comment (and, yes, family members are welcome here so long as they continue to share good thoughts).</p><p>You're thought about brand is bang on. A VC's brand, like the brand of any company, is vital to its success. I'd be careful not to give Fred Wilson's brand buy-in of delicious too much credit for the company's success. It would be interesting to see how many useres each of the 50 social bookmarking sites had before Union Square Ventures invested. I'm willing to bet that Fred invested in the market leader and then leveraged his brand to help make it a success.</p><p>The fact that the share of the original 50 VC firms profits increased over the past 20 years, despite many new competitors, isn't surprising. They have a lot of things going for them :)</p><p>What's interesting is that this helps to reinforce the notion that the industry is ready for a disruption. Market pioneers created a market and enjoyed tremendous growth. "Me-too" comeptitors entered the market and competed on known and understood features/benefits/and metrics. The industry kept competing by improving these metrics/benefits (in the VC industry - bigger and bigger funds). They've begun to overshoot the needs of some segments of the market. This creates an opportunity for a new company to enter the market and compete in these segments using different features/benefits to compete on.</p><p>I'm not sure which band Rick Segal is in, but I'm excited to hear them next time I'm in Toronto ;)</p><p>(I'm allowed to make fun of David's type-o... he's family!)</p>FraserThu, 26 Jan 2006 19:15:47 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730191<p>Great post! Very interesting. A good question to ponder about what the next successful VC model will be is: what is VCs true added value? The points above (except for the advice part) sound like sophisticated angel investors or a very hands-on bank. In biotech I think the added value will be more niche - ie VC funds won't be "life sciences" or "biotech" but "cancer" or "diabetes" funds. This mirrors your point of more niche in the investments. I believe their biggest value is branding. The original 50 VC firms (KP, Sequoia, etc) attach a brand that is hard to beat. A recent paper showing their share of profits have increased over the past 20 years despite the entrance of over 700 new funds suggests that. Fred Wilson branded delicious as a winner...I didn't realize how significant a boost that was until I saw the 50 or so other sites competing in social bookmarking. I think VC branding enjoys a first-mover advantage...Rick Segal has a great band that will likely enjoy first mover benefits as well, dont you think?</p><p>Good job!</p>DKThu, 26 Jan 2006 18:37:54 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730207<p>David, great comment (and, yes, family members are welcome here so long as they continue to share good thoughts). You're thought about brand is bang on. A VC's brand, like the brand of any company, is vital to its success. I'd be careful not to give Fred Wilson's brand buy-in of delicious too much credit for the company's success. It would be interesting to see how many useres each of the 50 social bookmarking sites had before Union Square Ventures invested. I'm willing to bet that Fred invested in the market leader and then leveraged his brand to help make it a success. The fact that the share of the original 50 VC firms profits increased over the past 20 years, despite many new competitors, isn't surprising. They have a lot of things going for them :) What's interesting is that this helps to reinforce the notion that the industry is ready for a disruption. Market pioneers created a market and enjoyed tremendous growth. "Me-too" comeptitors entered the market and competed on known and understood features/benefits/and metrics. The industry kept competing by improving these metrics/benefits (in the VC industry - bigger and bigger funds). They've begun to overshoot the needs of some segments of the market. This creates an opportunity for a new company to enter the market and compete in these segments using different features/benefits to compete on. I'm not sure which band Rick Segal is in, but I'm excited to hear them next time I'm in Toronto ;) (I'm allowed to make fun of David's type-o... he's family!)</p>FraserThu, 26 Jan 2006 18:15:47 -0000http://disruptivethoughts.com/2006/01/26/fixing-the-vc-industry-an-industry-ready-to-be-disrupted/#comment-5730208<p>Great post! Very interesting. A good question to ponder about what the next successful VC model will be is: what is VCs true added value? The points above (except for the advice part) sound like sophisticated angel investors or a very hands-on bank. In biotech I think the added value will be more niche - ie VC funds won't be "life sciences" or "biotech" but "cancer" or "diabetes" funds. This mirrors your point of more niche in the investments. I believe their biggest value is branding. The original 50 VC firms (KP, Sequoia, etc) attach a brand that is hard to beat. A recent paper showing their share of profits have increased over the past 20 years despite the entrance of over 700 new funds suggests that. Fred Wilson branded delicious as a winner...I didn't realize how significant a boost that was until I saw the 50 or so other sites competing in social bookmarking. I think VC branding enjoys a first-mover advantage...Rick Segal has a great band that will likely enjoy first mover benefits as well, dont you think? Good job!</p>DKThu, 26 Jan 2006 17:37:54 -0000