Shrink It Must
I've written before about the overfunding of the VC business. The fundamental problem is that high-tech entrepreneurship doesn't scale with more money. There are limits to the number of deals that deserve high-tech venture capital each year. These limits are based on the number of sound teams and ideas that exist, as well as the amount of new technology you can push onto customers at once. I've felt that, for the long-term, VC funding can't grow much faster than GDP. And, with a shrinking GDP, that highlights the VC over-funding even more.
Scott Kirsner wrote about this in today's Boston Gobe, including a quote from me. He also includes this quote:
"Last year, our industry raised about $28 billion in new investment capital," says Michael Greeley, chairman of the New England Venture Capital Association and managing director of Flybridge Capital Partners in Boston. "I think we'll raise between $8 billion and $12 billion this year, nationally. That's a dramatic reduction. My sense is that the average fund size will be cut in half, and they'll have to cut the number of partners who work for them as a result."
I think it will take a while, but this sort of shrinkage in the VC business will be a good thing. The best ideas will still get funding, although it will be tougher. And the weaker ideas that may get funding now, will not. This will lower the noisy competition for the better ideas and allow them more time to flourish in a capital efficient manner.