Comments on: Venture capital harms your wealth Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 By: buildgrowth77 Fri, 16 Oct 2009 07:41:42 +0000 there is no seed capital in America. VCs shouldn’t be surprised as to their mediocre returns. If companies can’t find a few hundred thousand dollars in seed capital, there’s nobody in the greenhouse. We need more funds doing seed capital. America needs to create tens of thousands of new companies a year for the next decade to create jobs growth. This is a strategic plan. You don’t rebuild America overnight. You need a long term plan that focuses on small companies and medium sized companies.

By: Stockwatcher66 Thu, 15 Oct 2009 20:27:03 +0000 I’m currently in the process of bootstrapping an internet service business with two partners. While some early stage capital would help to accelerate the sales & marketing efforts (to Chris M’s point), when doing our extensive research the cost is simply to high.

Horror stories abound around the VC industry of enterpreneurs who have killed themselves to build a successful business only to have the VCs walk away with all the cash at the end and the enterpreneur left with little else than being burnt out and jaded.

Chris M has it correct that the cost of entry to starting a business now is very low – heck look at Facebook, there first months of business were hosting fees of $65/month. I think if VCs are going to make another run, they are either going to have to find other industries that can deliver the kind of returns that high-tech did – which with any form of manufacturing is extremely difficult – or face the realities that their cash is longer a requirement, but merely an enabler, and therefore not ask for such ridiculous percentages of ownership in early stage investments. VCs need to get a grip on the current business realities.

As for my partners and I, we choose to go without them as we don’t want to put in the long hours and hard work to make others rich and gain nothing for ourselves. If we wanted to do that, we would just continue to be wage slaves in large corporations.

By: Chris Maresca Tue, 13 Oct 2009 12:33:22 +0000 VC funding is anachronistic, at least in the software space. This is in large part due to the cost of building a software business having fallen through the floor in the last 10 years.

There are many factors, from outsourcing to hosted services to open source, but the reality is that most of the investment is now in sales & marketing rather than engineering and even the cost of those have come down hugely. So, instead of needing $5-10 million to get to scale, companies now need in the six figures. Perversely, most VC funds have grown larger in the last 10 years, which means that the average deal size per partner has to be larger. The net result of this is that VCs will only invest in capital intensive verticals like clean energy and biotech.

That said, there is still a need for early stage, small funding sub-$1million, something which is both sorely lacking and increasingly rare. Angel investors have picked up some of the slack, but they are too few of them to really make a difference.

The final nail in the coffin have been rules like SARBOX which dictate the minimum revenue size needed before a company can IPO. That has lead to a large number of ‘living dead’ companies with no chance of an exit despite quite good business models. Some are exiting on overseas markets like AIM, but the future of a VC-backed sub-$50million in revenue company is pretty bleak.

[full disclosure – I’ve done a lot of work for VC firms and serve as part-time adviser to a small firm]

By: Lance Knobel Mon, 12 Oct 2009 20:17:27 +0000 I think Scarlett makes some excellent points.

An additional factor for early-stage Silicon Valley-type VCs is the extent to which they are needed in their traditional area of information technology. The rise of outsourcing and web-based tools has meant that there is far greater scope for bootstrapping a good idea. You need money only when you need to scale, and services like Amazon’s EC3 reduce the need even there.

By: scarlett Mon, 12 Oct 2009 19:45:52 +0000 Fewer and smaller do not go necessarily hand in hand. What will be needed is the right size of funds for the right size of deals, and actually with (i) the need for LPs to invest large sums of money, (ii) a decreasing number of interesting VC funds, (iii) the latter going after more late-stage assets and (iv) the numerous companies to invest into, this could well pave the way for large VC funds. Ask LPs, they will tell you their appetite to see if such scenario could happen. As well, if you only look into biotech, some recent articles were quoting industry people predicting that with the ongoing pharma consolidation, more start ups will have to find funding to finance their projects right to the market – fair enough, this won’t come only from VCs, but the latter will have to commit more money – which inherently raises a basic question about how to get any interesting returns when IPOs are off the table and buyers fewer and more stingy… Tough to redefine a business model long gone, where too few made money out of the carried, but rather thanks to the management fee in the good old days. Those times are over.

By: bill topp Mon, 12 Oct 2009 14:35:23 +0000 the difficulty with sub-$50M ipos is that investors need assurance of aftermarket support for the stocks, particularly independent analysis. with a market cap that small the trading volume at today’s commissions will not support an analyst to follow the stock.

without analysis from the underwriter or somewhere else anyone would be very hesitant to buy a small high tech stock.

i doubt there will be a market for small cap high tech stocks in any numbers