Venture capital constipation

Venture capital

According to a recent Wired article VC firms are having a difficult time finding start-ups that need their money. Simply put, there are not enough start-ups out there in need of large cash injections.

As companies become cheaper to launch, fewer entrepreneurs need the kind of cash infusions that VCs provide. And angel investors are encroaching on VCs’ turf by throwing more money at early-stage companies; in 2006, angels pumped a total of $26 billion into 51,000 startups, up from $18 billion in 2003. At the same time, large companies are snapping up Web businesses before these startups ever see a second or third round of funding.

The article mentions several reasons for this huge pile of unused cash, but never mentions the possibility that modern start-ups are being run more efficiently than the mythical champagne-soaked, Ferrari-fueled start-ups of yore.

Angel investors, marketing via social networks, affordable hosting and distribution have certainly made things much cheaper for entrepreneurs to create and spread their product or service. However, I think start-ups have become more efficient than they used to be.

Am I imagining this?

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4 Responses to Venture capital constipation

  1. Simon Owens says:

    I find it funny that these venture capitalists are throwing tantrums because they don’t get to create a new tech bubble that will inevitably pop. Does anybody else agree that this news is a *good* thing?

  2. Dave says:

    Simon, I think you’re absolutely right. I think rapid growth (the kind that fuels rapid ROI) seems very sexy in the VC world.

    I think methodical, calculated growth of modern start-ups is much less sexy, but probably more efficient and solid in the long run.

    Of course, this is easy for me to say, since I’m not an entrepreneur.

  3. Bill Shirley says:

    I wouldn’t state it as much that startups have become more efficient; I would say that these VC firms developed in the Halcyon Days of Web 1.0, when startups tried to out-bloat the previous day’s bloat (from themselves or others).

    Super Bowl sock puppets, anyone?

  4. Dave says:

    I almost forgot about the sock puppets. I recall a monkey banging on a drum for 30 seconds too. Ahh good times, good times.

    I think the tagline was something like “We just spent a million bucks. What do you do with your money?” I don’t even remember what company produced that ad. E-trade perhaps?

    We have Youtube now, which fills that absurd niche.

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