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.
