Interesting article yesterday on venturebeat.com about why the VC market is broken. The circumstances surrounding the economic climate and end of the “let’s create a cash burning internet startup and hope it gets bought out” mentality will cause an estimated 50% of VC firms to go under. This consolidation of VC is probably needed as the easy-money VC-fund my friend’s startup fad is finally recognized as an ill founded business model. A few interesting points made in the article:
- Less than 10% of startups that need capital get funded
- The companies that get funded are generally through knowing friends or “friend-of-friends”
- Endowments and pension funds are moving away from investing in VC funds
- VC funds are now consuming more capital then they are generating
At present moment, VCs are not a creator of value, but a diminisher of value!
Where I do agree with Ressi is in the ugly economics overall. Most daunting is that there’s more money being invested into venture firms than those same VC firms are generating from their investments in start-ups — in other words, Ressi argues, they’re now having a net negative affect on the economy. You’d expect this lopsided dynamic to exist temporarily in a downturn. But the worrying thing is that this state of affairs may last for quite some time.
I’m not sure how long this negative balance will last, but for now it certainly contradicts the message traditionally propagated by the VC industry — that it, that VC is a net creator of value, namely of stock market growth and job creation. That positive impact was indisputable — until now.
In order for the VC market to stabilize, the underperfoming firms will need to be weeded out.
However, a lot of VCs are likely to go under this time. This asset class significantly underperformed other asset classes between 1998 and 2006. A handful of firms — Sequoia, Kleiner, Benchmark, Accel and a handful of others — have pulled up the average performance somewhat, because they’ve produced an inordinate amount of the successes (a small group of homeruns, the eBays and the Googles, account for 25 percent of total VC returns over the past 20 years; see Ressi’s slides). But if you invest in the average firm, you’re doing very poorly. So limited partners will probably shift from endowments and foundations increasingly to fund-of-funds and sovereign wealth funds.
So, yes, the VC model is badly broken. This time, Bob Kagle’s statement about half of all VCs going out of business is more likely to be true.
The way I see it, the doors will be opening for those willing to create a solid business model to flourish. Instead of spending time worrying about how to impress and sell whatever company we start to a VC firm, we will focus on building and evovling our business itself. It seems that CollarFree has a pretty firm grasp on this concept, and we can learn a lot from them.
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Sources:
http://venturebeat.com/2008/11/12/the-vc-model-is-broken/
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I have always been a believer that if you are going to have business cards designed for your business, then you might as well make them memorable. The cards should have what I call the “Wow, that’s cool!” effect on someone. This will make the person remember you as well as your brand better than a generic card. Keep in mind that while I am a big fan of “standing out” when it comes to business cards, it should never be deemed a mission critical expense. I came across a few ideas for business cards and logos:
Marketing has evolved over the course of the century into a completely different model. It no longer works to canvas your brand or ads all over the place without a strategy. According to Seth Godin, we are experiencing a shift from Mass Marketing to Tribal Marketing.
I read a great little article on how SEO has continued to change and evolve over the past few years. SEO is something that will continue to change, and those that stay on top of it will be successful. It used to be that page design and backlink generation were the keys to bumping up your webpage on the search results page. While still important, this has become merely a piece of the overall puzzle to conquering SEO. A large piece of SEO is now based on interactivity, primarily represented through effective use of Social Media. Some of the most effect tools that John Jantsch recommends are 
IdeaFLITE 
Creative Destruction & Recessionary Marketing
Posted in Marketing, News & Commentary, tagged Creative Destruction, Marketing on January 28, 2009| Leave a Comment »
Creative Destruction is always widely talked about during recessionary times. Creative Destruction is the killing off of existing products, services, technologies, or business models by radical change or by achieving desired results by more efficient means. For example, Wal-Mart’s business model driving mom-and-pop stores out of business, or music CD’s being replaced by mp3s, etc. The internet in general has caused a tremendous amount of creative destruction by providing the means for continual intellectual and process driven innovation. Here is a cool chart below that I found.
Anyway, we know that recessions are painful but we also know that they provide opportunity. The point of this post is not to just point this out, but to remind us that marketing efforts must also change during a time like this. Instead of marketing with the mantra of “make your life better by buying things you don’t need” (a little bit of sarcasm inserted here), the more appropriate mantra is “improve your life by purchasing a needed product that solves a specific problem or need”. We are working with products (book and other muse ideas) that potentially can address specific problems for people in our current economic climate, we must just make sure we cater to our market appropriately in our product development and marketing efforts.
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Sources:
http://tmccune.blogspot.com/2008/04/creative-destruction-in-action.html
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