Rick Segal Wants to Reform the Venture Business

Canadian VC, and longterm acquaintance Rick Segal is going around talking to some of the blogosphere's smartest people lRobert Scoble, Chris Pirillo, Hugh Macleod, and Doc Searls, to name a few. He's asking them how to make the venture capital business better.

Almost everyone I know, including a whole bunch of VCs I know agree that there's lots of reasons why the venture business needs reform, to benefit everyone from limited partners to eventual customers and everyone in between. I wrote about this, way back, during the deeply depressing trough after the bubble burst in everyone's face. I probably wouldn't be quite as harsh today, but I see many of the same problems escalating. They include:

• Love for boxes. VCs like to put their investments into neatly defined organizational boxes, such as "software" or "b 2 b" or whatever. We have entered an era when the real winners are companies now forming that will categories not yet seen on anyone's whiteboard.
• Too much money.  Too little time. VCs pay their own rent and car leases by taking a couple of percentage points from their venture funds. The bigger the funds, the bigger the fees. This makes it very difficult to make small investment--say under $5 million.  The economics of starting a company today are such that a great many companies only need $1-3 million to get started.  If you are managing a $200 million fund, that's chump change and for you to be a contributing member of a board, if you invest your money $1 million at a time, you'd need to sit on 200 boards. While angel investors, serve up smaller amounts of investment cash, their real interest s often to sell their investments to early round investors as fast as they can.  For that reason angels can be too pushy with a company that has promise but needs time to get its act together.
• No operational experience. Too many VCs have never been there and done that in terms of starting up a company.  If I were in a start up, I would be extremely wary of a VC who had no operational experience.

I saw Rick at our Seattle Naked Conversations launch party and he said some very kind words to me. He also said he'd like to talk with me. I hope its on this subject.  But I guess I'll ave to wait until he's done speaking with the smartest people in the blogosphere.