VCs Blunt the Cutting Edge
Innovation depends on VCs who fund those cutting edge startups when no other investor will, right? That’s what I thought too; but Steve Duplessie writing in CIO suggests otherwise. His point, in a nutshell, is that ever since the IPO market dried up and a grand exit to the public markets became unlikely (or even more unlikely), the best bet has been to invest in companies that instead of disrupting an industry solve a problem for its incumbents. This way they get acquired, investors get paid back and the status quo sails on. Even though they’re not going to knock one out of the park this way, successes approaching Twitter’s have been so few and far between in the last decade that VCs are unlikely to change this strategy any time soon.
I don’t dispute that VCs can be pretty blinkered, but it may not be wholly due to reasons of exit strategy. Early stage investors see so many pitches, they need to classify them within industry models in order to sort and evaluate them. Like movie studio execs who are famously reachable only with pithy summary comparisons – “It’s ‘Love Story’ meets ‘The Road Warrior’ set in Mughul India” – potential investors need to know right away where a startup fits in their model and why it will make money before they’ll waste any more time on it. There isn’t a lot of patience for the entrepreneur who claims to have a whole new niche or product class unless you’re working with manifestly new and disruptive technology (and even then there’s a risk that you’re proposing to disrupt an area where the VC has already invested). You may think you’re the next Zuckerberg but unless you can show up in a prototype freeze-dried flying car that runs on kitchen waste, you’re business plan will probably go on a pile of a thousand others identically bound.
This is just one more reason why it’s hard to get a business idea of the ground. What makes sense for investors is tough on entrepreneurs. The good news is that Facebook’s recovery and Twitter’s bubbly debut have rekindled interest in tech IPOs, which has been tepid for years. These high profile IPOs are both in the consumer web/social network space so it’s possible to read too much into them; but if IPO exits truly drive VCs entrances these and other signs of an IPO renaissance are reason for entrepreneurs to polish up the PowerPoints.
« Envisioning the Future of Smart Glasses More Than Roads and Bridges »
