Chris is crushing it on his blog right now.
Bill Gurley wrote an excellent post yesterday on what is happening to the venture capital industry. His “punch line” is that:
…as these large institutions [LPs] adjust their portfolios and potentially abandon these more aggressive strategies, the amount of overall capital committed to alternative assets will undoubtedly shrink. As this happens, the VC industry will shrink in kind. How much will it go down? It is very hard to say. It would not be surprising for many of these funds to cut their allocation in the category in half, and as a result, it shouldn’t be surprising for the VC industry to get cut in half also.
From a top down perspective, this analysis is spot on.
There is another side to this story at play here as well, and it is captured in Fred Wilson’s post on craigslist yesterday. Fred writes:
I do not believe we should criticize a company that operates like this. We should learn from it. Of all the Internet companies out there, the one that serves as the most iconic for our firm is craigslist, not Google. We dream of funding a company that can be worth a billion dollars with only 30 employees. We’ve never done it and I don’t know if we ever will. But we are going to try again and again and again.
Fred’s perspective here is widely shared in the current VC community. And as traditional tech VCs increasingly focus on capital efficient models, where controlling spend becomes as important as ramping revenue, there is a definitional shrinking in the capital required to fund the sector (assuming some fixed capacity of investments per investor). Even more so, as I commented on Fred’s post, companies like craigslist may not even need or want VC investment, further shrinking the capital required. The craigslist’s of the world may be the unicorns of the venture capital industry. Either way, this is a meaningful departure from the capital intensive telecom and infrastructure investing of the 90s.
What we have here is both a top down contraction as LPs change their risk profiles and allocations to illiquid assets as well as a bottoms up move towards capital efficiency further compressing requirements for venture capital.
So the shrink is on from both sides, which as both Fred and Bill agree, is probably a good thing for the long-term health of the industry. Expect to see fewer, smaller funds, smaller rounds and greater returns. Let’s hope so.
My response to a friend choosing between the iPhone and the Tour, both of which scare him:
They both should scare you.
Tour – Verizon is the best, works internationally, keyboard is great for power users, Internet is slow, apps are weak, battery life absolutely blows.
iPhone – Internet is fantastic, app store is unparalleled, design is intuitive, works internationally, touch screen is suboptimal for power users, battery is OK, AT&T sucks.
If you want good reception, keyboard for power email, don’t care about international and use the phone primarily for speaking and typing, get the Verizon Curve (previous model).
If you want the Internet, apps and want to up on the latest and greatest the mobile web has to offer, get the iPhone.
Alternatively, you could get the iPhone + a cheap, small Verizon phone primarily for calls (good reception). Only trade-off there (other than two devices) is the lack of keyboard…and that goes to your primary use case.
Enjoy the confusion!
Gabriel Stulman’s new west village restaurant opens today for dinner. We are proud to be investors along with some friends. The New York Times says Joseph Leonard is:
somewhere between a brasserie and a gastropub, ranging around France, Italy and the United States
Joseph Leonard is at in the West Village and will be open for breakfast, lunch, and dinner, but is only open for dinner this week.
Here’s the Gotham Gal’s longer description of Joseph Leonard and an explanation of why we are so excited to be investors.
Really excited for my good friend Gabriel and everyone involved in the restaurant. Should be fun…