We all now know officially that Apple launched iPad. It is an interesting new concept between mobile phones and laptops. And definitely it will have and need a lot of applications to be successful. We saw already some games, books, and newspapers that are available.
The next step is to get developers to make much more apps. Paul Grim, a General Partner at venture capital firm SunBridge Partners, commented the apps business from the traditional VC point of view in Venturebeat’s article, An investor’s take on the iPad — how to parse the hype. In this article Paul Grim says:
“Although I do believe there will be many successful apps on the iPad, I don’t believe they are generally venture-backed material. As with most of the iPhone apps, this will be a hits-driven business with little capital intensity; most of the successes will likely be angel or self-funded.”
This is the same point Grow VC has emphasized many times (like yesterday). We have actually divided the mobile startups now into two main categories (there are of course much more segments inside these categories):
Hardware and more demanding technical platform startups
Application startups
The first category includes companies that have been funded by traditional VC’s. But many of those firms also need seed funding before a VC round. The second category is not really for the traditional VC’s. But it doesn’t mean that they are not good business opportunities. But the capital structure and risk profile is different from VC’s targets. They can start with small money, and it is not technology risk, but much more market risk, i.e. can they really get loyal users.
This is one reason, why new models for seed and startup funding are needed. And we believe Grow VC’s concepts, which we have now in beta and especially new ones we launch in this year, will offer a new way to fund these companies.
2010 will be an interesting year. If VC investments go back up to $25bn to $30bn per year, then the diet didn’t stick and we are back to an overfunded industry that will produce subpar returns on average.
If, on the other hand, the new normal is $15bn to $20bn per year, then the diet worked and we’ve scaled back the business to healthy levels.
This comment relates to he’s earlier post about the “Venture Capital Math Problem“, where he explains about the problem that – too much money will make the whole VC industry to under perform.
As this is one of the reasons we have started Grow VC, I wanted to point out that things are not the same everywhere. So here’s my take on the topic:
I think this is similar problem than it is with food. In some western countries there is too much food and problems that are associated with that, like obesity. Yet in many parts of the world, people are starving.
So if some markets in the world have too much money in VC, it does not mean there is too much money overall, it’s just wrongly distributed. I do understand that, there are also problems with having too much money per sector, so that nobody is getting good results, but that too is wrong distribution.
Early VC money should always be going towards new innovation and not to be “me too in the popular segment” – there are plenty of problems in the world for entrepreneurs to solve & VC’s to be successful.
There is a big gap between what Kiva.org is doing and with these problems of having too much money in venture capital in some regions. For us this shows that there needs to be much better distribution, more transparency and more activity in this segment overall – and this is exactly where we are focusing our efforts.
I think this just shows that money does not solve problems. The problem here is not too much money, but how it’s now distributed.
VC industry is starting to look like the newspaper industry – better to wake up, the blogs are coming…
Fred:
What are the blogs of the VC business?Things like Y Combinator are great but they are feeding us even more opportunities so I see them as additive, Although I also see blogs as additive for the newspaper business if they’d just see themselves as curators and aggregators instead of content creators
Me:
I guess the closest thing to “blogs of VC industry” today are angel investors. But that’s for today. Also Y-combinator and the likes are great too and could be considered as “blogs of VC industry”. However their “next step” need to change away from just VC’s.
The fundamental change will become, when there are “platforms” for anyone to start a “blog for VC industry” and that’s what we are doing in www.growvc.com.
Overall, we feel that in long term the money will be spread to more potential start-ups and more of them will not go via IPO but just buy back of shares, mergers etc. with lower ROI. But that’s OK if the time for ROI is shorter and cost of management is lower.
So – be more direct, spread wider, lower the management cost, speed up the ROI cycle and you can accept lower ROI.
If you think about the structure of today, from where the VC money really comes from, you start to see the “big picture”. – basically it means that individuals like you and me pay for pensions funds etc. and these funds then invest to VC funds. VC’s then make investment decisions and “manage” the investments, all the way to take it public (hopefully). Basically just to sell it back to us…
When more people will start to understand this cycle because of more info and transparency online (if they are interested), people will not accept this structure. Because in the long run what matter is, if the companies in question sell what matters. And that is not a question of size.
Fred:
Got it
I hope this works
It would scale much better
Related to this topic, below is a very interesting speech given by Fred Wilson at talks@google. You need to spare an hour to look the whole video, but I feel it’s well worth it. Just have some popcorn & coke and relax.
What makes it interesting to me, is that those industries that are going to be disrupted by internet in the future, currently have same issues what Venture Capital does, yet for some reason those would not apply to VC industry.
Zopa.com is a social lending service and kiva.org is a micro-loan service. At last weekend many British newspapers wrote about Zopa. Now when all banks have a lot of bad loans, Zopa has done very well. And it seems to be a surprise for many traditional finance sector people that Zopa has very few bad loans. Independent writes “Andrew Hagger, from the financial advice website Moneynet.co.uk, admits that when Zopa was launched, he had misgivings. These, he says, have eased over time. ‘I was worried about the possibility of savers losing out due to borrowers defaulting, but after three years there is no sign of this. The key is that, through precise credit scoring, Zopa does tend to be careful over who gets the loans.’”
Independent summarizes “On the other side of the coin, borrowers have seen credit-card, loan and overdraft rates rise as banks grow ever more reluctant to lend. Even people with a good credit history are being charged more or refused a loan altogether. Against this backdrop, any initiative that offers to cut out the banks is bound to appeal. This is where Zopa.com, the money-exchange website, fits in. It styles itself as a market offering ‘loans from people, not banks’. Basically, it matches individuals with cash to lend to individuals looking to borrow.”
Zopa.com and kiva.org are good examples, how new kind of finance and funding concepts can work in the Internet. They are social, they are open and transparent, and they are for longtail. There are still a lot of people who are skeptical, whether this kind of models can really change finance models and business. But we start to have enough evidences that at least these new models have demand and space to grow. And the current crisis of financial institutions will accelerate the growth of new models.
The next step is to get developers to make much more apps. Paul Grim, a General Partner at venture capital firm SunBridge Partners, commented the apps business from the traditional VC point of view in Venturebeat’s article, An investor’s take on the iPad — how to parse the hype. In this article Paul Grim says:![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=421610fe-4a1d-4ee1-9422-bfa3502976a0)
– better to wake up, the blogs are coming…![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=c2ec79e5-2480-47cc-aeec-fdc81543eba2)
