People keep talking about the decrease in venture investing, and how the VC financing model is out of whack:
"Because venture funds invest not just in all the wrong places, ignoring clear supply and demand signals - but, worse, in all the wrong and same places. Where one pioneer invests, a slew of imitators follow, and so tremendous amounts of cash are poured into the same business design or market space - ad exchanges, social networks, and blogging/vlogging platforms to name just a few recent fads. That striking homogeneity reflects an almost total lack of strategic imagination by venture players."
- Umair Haque via Kortina.
Umair wrote about this twice--here and here. Umair's a smart guy, but, like a lot of other people, he keeps blaming this on VCs. Is it me, or aren't the entrepreneurs the ones who are supposed to be innovating and creating markets, not VCs? VCs don't innovate. They fund the innovation of entrepreneurs. When I hear "lack of innovation", I'd guess there's a problem with the source, not the source of funding.
He piles on with the VC finger pointing:
"Why does President-elect Obama have to invest a likely trillion dollars to renew... auto, energy, healthcare, education, finance, and agricultural industries... Because today's crop of apathetic, risk-averse venture investors didn't."
"How many new industries or markets have venture funds created in the last decade?"
"...tomorrow's sources of advantage remain largely unexplored - because venture investors have been systematically underinvesting in discovering them"
When I hear people complaining about VC's and the venture capital model, my first thought is, "Are there amazing, innovative companies not getting funded because there's something wrong with the VC model? Is there a viable entrepreneur with a groundbreaking idea who can't get cash for it? Who??"
Honestly, most people's ideas just aren't that good... and then even if you have a good idea, the chances the you have the means to turn it into a real business is pretty slim. Frankly, I'm amazed that any profitible new and innovative companies *ever* get build--its not easy. The idea, though, that such businesses exist, but outside of the scope of what "lemming" VCs tend to invest in is pretty ridiculous.
He keeps bringing up the auto industry, but aren't there a bunch of VCs in Tesla? Is there reason why that's the only auto startup I know of a function of unwilling VCs or is it a lack of capable entrepreneurs willing, able or interested in starting a car company from scratch?
Umair has never sat on the other side of venture capital deal flow. Trust me, it isn't pretty. It's not the VCs that are myopic--it's us entrepreneurs. We're the problem. We're the ones coming up with the "me, too!" businesses, and before you say, "Well, that's because that's what is getting funded", if you're an entrepreneur who creates businesses based on what you think a VC will fund versus things like value creation, potential for distruption, your own passion, then I'm not really sure how successful an entrepreneur you're likely to be.
Just look at entrepreneurship education in this country. We spend more time teaching entrepreneurs how to write business plans than we teach them about passion (or teach them how to fuel it) or about the underlying technologies they're supposed to innovate with in the first place.
When I look at stats that say that VC investment is down, I think first about how deal flow is probably down, too. When the economy turns, the liklihood that someone with a good idea is going to take a risk and jump from their cushy job somewhere goes down, too--understandably so. I see lots of people complaining about the lack of financing out there, but honestly, I haven't seen one single deal that cannot get financed because VC doors are shut, VCs are risk averse, VCs are stupid, etc. There are some deals that got financed on previously screwy terms and entrepreneurs might not want to take a round that reflects current market conditions. That's a different story. But seriously, where are the amazing ideas that can't get money?
I've hardly seen any innovation in the education space. This is not a VC problem. Most of the education ideas I've seen are marketplaces for learning and the most innovation I've seen in learning recently is on YouTube and Slideshare.
The tendency to blame the people with the money in this country is rampant. We blame the Wall St. collapse on "greedy CEOs" and "predetory lenders". Seriously? I don't recall any lenders physically threatening me to try and get me to take their balloon payment/ARM combo loan back in '05 when I bought my condo. Silly me. You know what I did? I made myself a financial model to figure out what my payments would be and made sure I could afford my payments.
Even this Madoff mess. The fact that people threw the bulk of their savings to one money manager, even though they couldn't explain how he was making money, is ridiculous.
If anything is going to change in this country, it needs to start with personal responsibility. Don't invest in things you don't understand. Don't eat more calories than you can reasonably burn off. Don't blame VCs for not backing you when your idea isn't particularly innovative or doesn't have potential.
Umair's posts get quite a fair bit of traffic... You'd think that he'd be seeing the occasional groundbreakingly innovative entrepreneur with a great idea and he'd post a few times and say, "Like this company... here's my example... great idea, but VC's are too stupid or risk averse to invest in it."
I think it's very telling that the people who complain that VCs don't invest in the right stuff can't put to exactly what ideas they should be investing in.