… And a Child Will Lead the VCs

The wolf will live with the lamb,
and the leopard will lie down with the goat.
The calf, the young lion, and the fatling will be together,
and a child will lead them.
– Isaiah 11:6

There is a good Matt Richtel piece in the NY Times this weekend highlighting a trend I mentioned here a while back: The covert VC fondness for asking their children and (younger) receptionists for investment advice.

A little of this sort of thing goes a long way, and as a trend it as admittedly limited to the go-go areas in IT/web investing — you don’t see it in biotech — but it is, nevertheless, an eye-opener if you weren’t aware that your favorite seven-figure venture guy/gal gets a good chunk of diligence done over the dinner table with his/her offspring:

The investors said consulting with younger people would have been
unheard of in the dot-com boom of the 1990s. Then, investors were
immersed in the very technology they were financing, ordering books on Amazon, downloading music from Napster and buying and selling on eBay.
But now, in the so-called Web 2.0 era, venture capitalists’ personal
interests have strayed from the sweet spot of innovation: Web sites
like MySpace intended to connect people, free Internet calling tools
like Skype or software for mobile phones.

Fair enough, as far as it goes, but the real story is that venture investing has become consumer-centric, young consumers in particular, and VCs are a) not young, and b) among the least representative consumers you’ll ever meet. The upshot is that they really have no choice but to find someone who can help them figure out what’s hot or likely to be hot, because left to their own devices they’d be investing in VR Rubiks Cubes and Duke Nukem clones.

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  3. KPassage to India
  4. Cleantech Venture Investing is Larger Than Telecom
  5. FreeiPods.com, ResponderInfo, and the Online Lead Generation Business

Comments

  1. davet says:

    I think overall the article has a bit of a detracting light on VCs and their DD. How could anyone justify their own kid as being representative of their target consumers? Besides the fallacy of extrapolating the experiences of one child to a target audience, I think the child of any VC probably lives a lifestyle and experience atypical of most children.
    Why are there no focus groups or statistical tests? I think this article goes to show how arbitrary VC choices are when they are not basing their decisions on concrete analysis and expertise.

  2. Leigh says:

    According to the copy on most VC websites, they are looking for new ideas and not “me2″ (or even me2.0) companies. If that is the case, I hardly see how their kids or even focus groups will help them. People don’t know what they don’t know – the book Blink talked about it with regards to Aeon chairs – there are other examples such as the Sony Walkman which failed in research etc.
    But from the ‘cup is half full’ perspective, at least they don’t think THEY are the target market anymore – you know the classic “i know i am not the target market, but I can’t figure out why i would use this….”

  3. mike says:

    I’m just looking forward to the day when my daughter, now 3, questions as Heidi Roizen’s 11-year-old did, the business model of a potential investment.