Matt Marshall quotes Peter Rip of Leapfrog Ventures in an expansion of his MercNews piece from yesterday on the wind of creative desctruction currently blowing through VC-land. I generally agree with what Rip has to say, especially his comment that true early-stage venturing doesn’t scale — first-money is unique in that way — and that the cost of creating and selling technology products, especially in software, has fallen to the point that angels like Ram Shriram can become the star, not venture firms.
The result? Some tough conversations inside old-line venture firms, with the upshot being newly-fragmented VC outfits:
Several things have changed in the past few years.
Enterprises got burned with Y2K and the Bubble and are now risk averse on IT. Globalization has hit (1) labor markets (2) technology access (abundance), (3) entrepreneur-sourcing, and (4) end customer market access (to a lesser degree). Open source and Moore’s law has reduced the capital requirements for software-intensive businesses. But risk capital remains plentiful on a worldwide basis, but it wants to pour into a relatively few number of VC firms.
… I think much of the creative destruction we are seeing in the partnership changes are the result internal conversations about which of these strategies to pursue. Should we be BIG and manage for cash on cash returns? Should we be small and manage for IRR? Should we be global, national, local? Should we do buyouts or startups or midstage?
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