Sunday, July 24, 2005

US Venture Capital is Dead (at least for now)

Respected venture capitalist Howard Anderson (founder of Yankee Group and two VC funds, now teaching at MIT's Sloan School) has written a succinct description of the state of US VC. His bottom line: he's out and staying out.

Anderson's analysis makes sense to me. If he is right, then there was no point in starting up in the last few years and no point in starting up in the next several. Only time will tell whether this state of affairs is structural and thus long-lived (as Anderson thinks). If so, technology entrepreneurs had better start thinking of new ways to fund the movement of their ideas into the mainstream.

For now, my solution to that problem is to use a combination of Open Source Software licenses for my work, consulting around its use and deployment and subcontracting when I need a larger team. The use of Open Source licenses allows an individual to prove oneself and differentiate oneself from the rest of the pack; that fact that it extends the Open Source phenonenon is an economically-driven by-product, albeit one which is good for the community. Subcontracting leaves me without the overhead of a startup, soomething I am glad to avoid after the last decade of making payroll.

I thought Anderson's last thought was right on target: "Ever wonder what we did for a living in early-stage venture funding? I bet you think we spent the day searching for the next insanely great company. But we spent most of our lives in endless meetings with people who were lying to us: scientists who swore that their patents were solid and entrepreneurs who insisted that they had no competition. We lied right back at them: said our money was different." Hope springs eternal on both sides, and will ensure that many VCs continue to operate while they lose money. I hope I can keep that lesson in mind as I face new startup opportunities. There has to be a better way.

Thanks to Brian Sletten for the link to Anderson's article.

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