David Herrold

Venture capital constipation

Posted by Dave | Filed under Business, Technology

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?

Tags: entrepreneur, startup, Venture capital