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In defence of newspapers and serendipity
It seems like some shake-up is going to happen for VCs just because start-ups can get by with so much less money these days and because it's so much easier to get noticed now without already having the right connections. I think the market will come up with a solution, but I couldn't predict what it might be.
I agree that VCs are in the middle, but I would disagree that they influence both supply and demand. I would argue that VCs only respond to what the market is telling them, and if the market says it wants more profitless dot-coms, then that is what VCs will put their money into. By themselves, they can't create demand
The reason I think Dave's analysis is flawed is that he seems to be proposing a kind of public investment fund, and yet the investing public -- including many knowledgeable users and investors -- is what caused all the trouble last time around. One of the most dangerous things when it comes to investing is drinking your own bathwater, and I think you could argue that good VCs probably save as many startups from flaming out by going too fast as they do the opposite.
For all its' seeming frothiness this go around doesn't feel ike that. Yes, it is minor-league frothy, but there aren't jillions of dotcom features-masquerading-as-companies, and seemingly pointless-unless-you-squint-really-hard "end-to-end-solutions" to a non-existant problem floating around. I mean let's cut to the chase: how many of these hot things of the moment *are there*, this time? Not too dang many. Nothing close to the last go around. I mean, it felt like a week didn't go by without some air-filled whozit going public to breathless acclaim and visions of dollar signs dancing in heads. If that stuff is happening weekly now, I am sure not seeing it.
The big excitement is not really broad based this time - I mean, for the most part the action is either with GYM+aol or in their immediate orbit. The outfits getting attention are - with serious respect to those who created and drove them (I've been there, I get it, you did it, nicely done) - neither numerous, nor huge.
All this to say that, for VCs, the sandbox in which they are able to play *is* smaller in many respects this go around. That said, anybody who thiks that the role of VCs is off to the dustbin doesn't get how hard it it to build a profitable, sustainable, matters-to-customers business. It is not easy, and if Big is the desired destination, *rarely* cheap. But good on anybody in VC-land who sees the emerging issue, and is thinking about how to roll with those punches.
-- Stuart
Anyway, I like looking at it through a supply-and-demand lens... that's a good thought. I blogged my own economic perspective on the current situation after reading yours.
I would definitely agree that having so many VCs -- driven by the hot IPO market -- fueled the bubble... no question. I just didn't think it was fair to say that they created it.
And thanks for pointing me to your post -- you did a nice job of explaining in fundamental economic terms what makes Web 2.0 different from Web 1.0, and that is a valuable thing for all of us to keep in mind.