One of the things that irritates me about the media industry is that it spends a lot of time and money reporting on itself. The NY Times writes articles about who the new managing editor is. Do I really care? Well the blog world, or the new media world, is starting to adopt that same irritating characteristic. Witness the debate on the future of venture capital. Rick Segal writes a thought provoking post on reinventing venture capital. Of course, reinvention will help Rick because he is not on the inside of the VC club. But the need for everyone, now including me to pipe on the topic, creates very little value in a debate that the market will decide. Mattew Ingram, Mark Evans, Tom Evslin, Doc Searls, Dave Winer and a host of others have commented on the issue. John Battelle seems to be the only A-list blogger not to have throw in his ideas. Yes, it is easier and cheaper to start companies now then it has ever been in the software/services space. That means that more entrepreneurs are going to get prototypes and customers before seeking financing. But the need for the VC and VC money doesn't go away. There will still be a place for Kleiner, Sequoia and Benchmark to create value by finding great teams building great products in great markets. The question is whether the industry as a whole will be able to generate the same outsize returns in the next ten years that it has generated in the last thirty. Answer, probably not. And this is really a supply issue more than a demand issue. Since there is more institutional money flowing in to the asset class, there will be more money chasing deals. That will drive down startup valuation and industry returns over time.
So what is the answer to Rick's question about what value a VC creates in the new world? Entrepreneurs still need money to build their businesses. But of course, capital is a commodity today. The VC that can create incremental value other than money is rare (according to every entrepreneur I know); the ones that do will be the ones that earn better returns than the industry.
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