Venture Capital 2.0

My prior post was a tongue-in-cheek lexical rant about the use of “2.0” in everyday parlance.  I published it, went upstairs to make some nachos, and it hit me.  Why not Venture Capital 2.0 as a serious piece? So I sat down to write (and re- write and re-write) it, violating my own ethic about  2.0 being a silly shorthand.

Venture Capital 2.0
Lots of people in and around the VC business talk about how the VC model is broken including yours truly.  That assertion passes for insight in most conversations, but the real question is how and where to fix it? Since only the market fixes industries, the even bigger question is how will the market re-equilibrate to fix it and why hasn't it?

A large measure of the problem is structural.  It used to be that venture capital was scarce and a specialized product because of its risk profile.  Today private financial markets are more efficient (relatively) at trading off risk and return, assessing risk, and very effective at attracting capital.  There are some judgment biases by limited partner investors that arise from outliers like Google, but that’s a psychological issue, not a structural one.

In my opinion, at least five structural factors contribute to the lack of re-equilibration.  Normally I drone on at length on a topic, often making reading my blog  a commitment to what seems like a long-term relationship.  Not this time.  I am going to partition this discussion into more consummable chunks because, even I began to wander while re-reading my drafts.  So the next several posts will try to make each analysis more digestable. (Disclaimer: Like most things bloggy, these observations will be opinions.  I am sure there are more rigorous thinkers and researchers in the academic and investment communities who can and will have the time to be more thorough. I am just a humble, working stiff of a VC, trying to put term sheets on the table for my little companies.) 

To give you a peak at the conclusion, this will not be an advertisement for Small as the new Big or Early as the Real venture capital.  I will try to be more intellectually honest than that.   

Comments

[Andrew Fife]

Peter:
being intellectually honest is what bursts bubbles. Please keep that stuff to yourself.
-Andrew

[Neville]

Faster, please.

Some of us do have an attention span.

[Pete]

I can't wait to read your thoughts. Can you do it without using the word "meme"? I think you've hit your quota for the year. :)

[Stewart Alsop]

Tease! I've been waiting for days these five structural factors! I can't go on in life without hearing what they are.

[frederic baud]

Peter,

Maybe you could be interested in another 2.0 appropriation, what about Bank2.0. At BarCampBank - a group of committed disruptor from banking and finance - we are trying to foster innovations and the creation of new business models in the world of banking and finance using social networks and community based processes. We have in particular a workgroup named P2PVenture where we want to help creating a full-blown P2P project screening and funding platform for startups and small businesses.

The different links are:
- http://www.barcampbank.com - our international collaboration site
- http://p2pventure.barcampbank.com - the site of the P2PVenture project
- http://barcamp.org/BarCampBank - for the original "barcamp" page announcing our online and offline meetings

Cheers.