Future VC Crisis

I usually don't pretend to predict the future outcome of industry. I'm often very wrong about the future like many people out there, but what the heck! There will be a VC crisis... at least in the small segment of those affected by the current trends and from pure perspective of financials .

It is no secret that the cost of startup decreased dramatically. Paul Graham agrees here, and Prof (via NY Times) has an article here to reinforce the case in point. Wait, didn't I argue for rise of startup cost in the past? Not so fast here. Here's the difference:

• The cost of starting up a company (e.g. ideation, prototype, incorporation, deployments) definitely decreased dramtically. To that point, NYT has a good argument for why that is so here.
• What I meant to say in my previous blog post was the cost of total capital requirements to create the value at the time of exit went through the roof.

Let me come back to the first bullet about the cost of starting up a company. It is no accident that I talk to quite a few venture investors and entrepreneurs for a number of reasons. We quite often chat about the recession and the impact of economic crisis on deal flow, investments, etc. The investors love the current times, because

• revisiting valuation in this recession gives them a good leverage to make attractive investments
• they are busier than ever looking at all kinds of companies
• cloud computing and virtualization (in the software sector) turned out to present attractive value propositions to customers looking to reduce cost and survive the economy. ehhhh?

The VC Crisis
Without further due, here's my prediction about VC crisis. There will be winners in cloud computing. At the same time, it will be cheaper than ever for web entrepreneurs to start up a business, thanks to the innovation created by the cloud computing companies (invested by VCs). That, in turn, will make it difficult for many early-stage VCs to convince web companies to take money at an early stage. Then, early-stage VCs move downstream to later stage investment where the economics of exit multiples, etc. just doesn't work out well for almost all web investments. Instead of $10M in, $100M out economics, it will be more like $40M in $400M out. By the way, the number of companies that can justify the new economics...... there are even fewer companies to realize that kind of exit, thus more losers.

Summary (I could've Twittered this)
After investing in the sugardaddy cloud/virtualization companies, these companies drive down the cost for other startups, then the startups don't take early-stage money, then there goes the VC crisis. Sounds like now is a suicidal time for VCs.

Ouch...

John Sculley: Don't Be Afraid to Make Tough Decisions

John Sculley says it was one of the hardest things he'd ever had to do as a CEO: stripping his friend and sponsor, Steve Jobs, of any operating role in the company Jobs had co-founded. Sculley spoke to Inc. in 1987 about what became a very public crisis at Apple Computer, explaining why working with entrepreneurs -- especially those who crave control -- can be trying. "The hardest part of dealing with entrepreneurs is getting them to recognize their own weaknesses. Sometimes they will say they are weak in certain areas, and then try to jury-rig an organizational concept to compensate for those weaknesses. But they really don't mean it -- they don't believe it."

Courtesy of inc.

Disengaging from Social Media

I've been trying out various social media tools to engage with other online audience personally and professionally. I got into the social media ecosystem that I'm getting to the point where the incremental value of utilizing another social media tools (at least in the contact management sector) is close to zero.

The best tools so far has been Twitter, LinkedIn, and Facebook, and it should be no surprise.

I tried to make sense out of more extreme professional contact management tool by using Plaxo. Today, I declare the permanent "uninstallation" of Plaxo... forever.

I get too many spams and don't really get much value out of Plaxo. My contacts (including me) don't really update the contact information up-to-date. There's not really a reason to visit the Plaxo website. The desktop tool just flashed and uses up my CPU for no reason other than the software doing nothing.

Bye, bye, Plaxo. Although I never got to know you, you've already made yourself a fame by getting acquired by Comcast.

Rubbish Land

Image by Giant Ginkgo via Flickr

Americans and people in relatively well-developed countries take clean water and infrastructure for granted. When I was in Chicago, one of my favorite annual event was the "greenization" of Chicago River. It's actually quite amazing what Chicago has done with its water system, including:

• Reversal of flow to prevent Lake Michigan drainage
• Beaches nearby downtown
• Fish hotels underneath the Michigan Ave. bridge
• Water Purification

During the early 20th century, the water was too contaminated for consumption, but the city has done a tremendous job at purifying it and making the riverside enjoyable for tourists and citizens. It's gotten to the point where a bit of color contamination on the St. Patrick's Day is acceptable.

In this country where people take clean water for granted, there are still a ton of startup activities geared towards water purification. Making this blessed country even more blessed is........ blissful.

On the other side of planet, more specifically Manila, rivers are covered in trash. Not sure if any technological advances will be able to clean up the river, but this is just too stunning. The picture below, first shown at The World Water Forum, makes me wonder, "What the heck are we doing working on incremental environmental changes when the same resources can be deployed to make a much bigger impact?"

(Source: http://www.thesun.co.uk/sol/homepage/news/article2323032.ece)

Overheard in Silicon Valley

If my previous post was an indication of summarizing my daily lessons learned in the Valley, yes, I slacked off. I was busy learning about many things, and I would like to share some lessons learned with my readers. Mostly just brain dump of various things, but I'll try to bucket them into different categories.



Economy

• It's tough out there (quite frankly, everywhere these days), but productivity is WAY up stemming from low burn rate and increased work hours.
• Growth is still the king. Monetization can happen when the economy recovers
• (somewhat of a contradiction to the above) "Product, product, product. Growth later, please"
• Not that many companies feeling the pains in a tangible way. They just want to stay low until somebody else brave (or dumb) enough makes a big move.
  

Startup/Company Gossips

• Silicon Valley needs the next Google (awesome product with real revenue stream [not just a proven revenue model]) real soon
• Semiconductor industry is about to enter the most difficult times in its history
• SV always talks about SV, Boston talks about Boston vs. SV
• "Recycling" high valuation deals is somewhat of a trend
• Angels are busier than ever
• Facebook's talent hemorrhage is a big contrast to its predecessors like Google, Yahoo, etc.
• Entrepreneurs here live on dreams, elsewhere driven by reality
• Lots of excitement around Palm Pre. Most of the design features actually got "stolen" from another company
  
• While operational experience is highly respected, venture business is really about accessibility to deals
• New York's rise to stardom in entrepreneurship is noticeable from the other side of coast. With top-notch innovations and investors to enable the whole ecosystem
• Boston's main competitive advantage is largely top academic institutions
• Google fired some flamingos on the dinosaur sculpture, so that the employees can spend the time more productively
  

Other Stuff

• Too many good restaurants contributing to accelerated weight gain. No wonder the weather is so good all year round. I needed to burn some calories all the time
• Intuition is highly respected. Analytics, less so.

Too much to list all them out, but I'm sure I'll use some of the lessons learned in the future posts.