Thursday, November 13, 2008
Broken VC Model?
The real scary part is that the value created by VC falls below the money raised. (TechCrunch link below) We know this country is used to running budget deficit all the time, but c'mon... this is insane. The net negative economic value created by the venture capital industry just doesn't make sense. Do LPs even realize they'd be better off re-allocating their assets to ... umm.... charity?
From entrepreneur's point of view, what does this mean then? If venture capital industry shakeout indeed happens, and Kleiner Perkins, Sequoia, Accel, and Benchmark command "quadpoly" power over startups, then what? Do we turn to commercial banks for loans and operate highly leveraged startups? Then, another credit crunch. Then, another bank goes belly up. Then, then, then........ we'll have those VCs invest and run all startups. Aren't they supposed to be ex-serial entrepreneurs with successful track record of running numerous startups anyways?
Seriously, this is problematic. We need to find a solution to make this work out. More than 40% of the U.S. output is generated by the small businesses. Startups fuel the economy and big companies keep the fire going. I agree with many of Adeo's points in his slides. What he doesn't realize is that the VC model MUST work in this economy. Stop complaining. We have to fix the model ... like.... right now.