– Mark Suster is a former serial entrepreneur and a partner at Los Angeles-based venture capital firm GRP Partners. This article originally appeared on Suster’s blog “Both Sides of the Table”. The views expressed are his own. –
Or the Cliff Note’s version:
Open source and cloud computing (led by Amazon) drove down tech startup costs by 90 percent
The result was a massive increase in startups and a whole group of new funding sources: both angels and “micro VCs”
With more competition in early-stage many VCs are investing smaller amounts at earlier stages. Some are going later stage to not miss out on hot deals. I call this “stage drift.”
The opportunities for tech startups today are more immense than they’ve ever been with billions of people now connected to the Internet nearly all the time.
Downsizing Venture Capital
The venture capital business itself is going through an even more fundamental change than just the entry of a new category at the earliest stage. The industry is shrinking back to a mid-90′s level in terms of both dollars and numbers of firms.
The doubling of the industry size was caused by the euphoria of the dot-com bubble and since funds take 10 years or more to dissolve the bursting of the funding bubble has taken its time. We all know the result of the over-funding of the asset class – poor returns in aggregate for the industry. The best firms have still delivered results, though.