– 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. –
If you don’t want to read that post, the summary is:
Open source computing drove computing costs down 90 percent, which spurred innovation in technology
Open cloud led by Amazon with their AWS services drove total operating costs down by 90 percent. This led to an explosion in startups.
Amazon in turn led to the formation of an earlier stage of venture capital now led by what I call “micro VCs” who typically invest $250,000 to 500,000 in companies rather than the $5 to $7 million that VCs used to invest.
These trends have put pressure on traditional VCs. Some have done earlier-stage deals and done well. Others have chased earlier-stage but lack the skills or relationships to do this effectively. Some have moved into later stage investments in an effort to “put logos on their websites.”
People are moving into everybody else’s space.
Everybody seems to want what everybody else has. You know the old saying from Harry Met Sally, “I’ll have what she’s having!” This will continue while we’re in a tech bull market and I predict will wane when we’re not.
The Blurring of Investment Lines
With new micro VC entrants into to early-stage investing plus increased competition from angels, incubators and the like – traditional VCs have taken notice. So VCs spent a couple of years experimenting with earlier-stage investing, which is OK. The best of them: Spark Capital, USV, Foundry Group also understood that how they worked with these management teams was changing and I believe firms like this will continue to excel at early-stage investing. There are also others.